Q1 2027 Commvault Systems Inc Earnings Call

July 28, 2026

Speaker #1: Hello, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the COMMVAULT Q1 fiscal year 2027 earnings conference call.

Operator: Hello, thank you for standing by. My name is John, I will be your conference operator today. At this time, I would like to welcome everyone to the Commvault First Quarter Fiscal Year 2027 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. 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 1 on your telephone keypad. To withdraw your question, simply press star 1 again. I would now like to turn the conference over to Michael Melnyk, Vice President of Investor Relations for Commvault. Please go ahead.

Operator: Hello, thank you for standing by. My name is John, I will be your conference operator today. At this time, I would like to welcome everyone to the Commvault First Quarter Fiscal Year 2027 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. 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 one on your telephone keypad. To withdraw your question, simply press star one again. I would now like to turn the conference over to Michael Melnyk, Vice President of Investor Relations for Commvault. Please go ahead.

Speaker #1: All lines have been placed on mute to prevent any background noise. 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 #1: And to withdraw your question, simply press star one again. I would now like to turn the conference over to Michael Melnyk, Vice President of Investor Relations for COMMVAULT.

Speaker #1: Please go ahead.

Speaker #2: Good morning, and welcome to our earnings conference call. Before we begin, I'd like to remind you that statements made on today's call will include forward-looking statements about Commvault's future expectations, plans, and prospects.

Michael J. Melnyk: Good morning, welcome to our earnings conference call. Before we begin, I'd like to remind you that statements made on today's call will include forward-looking statements about Commvault's future expectations, plans, and prospects. All such forward-looking statements are subject to risks, uncertainties, and assumptions. Please refer to the cautionary language in today's earnings release and Commvault's most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in these forward-looking statements. Commvault does not assume any obligation to update these statements. During this call, Commvault's financial results are presented on a non-GAAP basis. A reconciliation between the non-GAAP and GAAP measures can be found on our website. Thank you again for joining us. Now I'll turn it over to our CEO, Sanjay Mirchandani, for his opening remarks. Sanjay?

Speaker #2: All such forward-looking statements are subject to risks, uncertainties, and assumptions. Please refer to the cautionary language in today's earnings release and Commvault's most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties that could cause the company's actual results to materially differ from those contemplated in these forward-looking statements.

Speaker #2: COMMVAULT does not assume any obligation to update these statements. During this call, COMMVAULT's financial results are presented on a non-GAAP basis, a reconciliation between the non-GAAP and GAAP measures can be found on our website.

Speaker #2: Thank you again for joining us. Now, I'll turn it over to our CEO, Sanjay Mirchandani, for his opening remarks. Sanjay?

Speaker #3: Good morning, and thank you for joining us. In Q1, we delivered results ahead of expectations on both the top and bottom line. A few highlights include: subscription ARR grew 22% to $1.05 billion; our SaaS business fueled this growth, growing 38% to $424 million in ARR; subscription revenue increased 16% to $267 million, led by our SaaS business, which hit a milestone of $100 million of quarterly revenue; and we increased EBIT margins over 200 basis points to approximately 23%.

Sanjay Mirchandani: Good morning, and thank you for joining us. In Q1, we delivered results ahead of expectations on both the top and bottom line. A few highlights include: subscription ARR grew 22% to $1.05 billion. Our SaaS business fueled this growth, growing 38% to $424 million in ARR. Subscription revenue increased 16% to $267 million, led by our SaaS business, which hit a milestone of $100 million of quarterly revenue, and we increased EBIT margins over 200 basis points to approximately 23%. Let me step back from the numbers and discuss the one thing driving our continued growth. In one word, it's data. Even before the rise of AI, data was the lifeblood of every organization. From systems of record, like ERP and CRM systems, to finance, HR, and collaboration applications, organizations run on data. Today, AI creates and leverages more data and puts more data at risk.

Speaker #3: Let me step back on the numbers and discuss the one thing driving our continued growth. In one word, it's data. Even before the rise of AI, data was a lifeblood of every organization.

Speaker #3: From systems of record, like ERP and CRM systems, to finance, HR, and collaboration applications, organizations run on data. Today, AI creates and leverages more data, and puts more data at risk.

Speaker #3: That's why managing and protecting it is more critical than ever. This is exactly what we do—and why AI is a tailwind for us.

Sanjay Mirchandani: That's why managing and protecting it is more critical than ever. This is exactly what we do, and why AI is a tailwind for us. Commvault is positioned to be the foundational platform for AI resilience, protecting the data, workloads, and applications our customers run their business on. AI is changing how organizations think about resilience. As AI creates more data, more identities, and more automated access to that data, having a backup copy is no longer sufficient. Customers are asking whether they can trust the data, govern which agents and humans have access, and how quickly they can recover cleanly when something goes wrong. Commvault sits right there at the data layer. If the data is compromised, the business is compromised, and if the business can't recover that data to a clean, trusted state, the AI system can't be trusted either.

Speaker #3: Commvault is positioned to be the foundational platform for AI resilience, protecting the data, workloads, and applications our customers run their business on. AI is changing how organizations think about resilience.

Speaker #3: As AI creates more data, more identities, and more automated access to that data, having a backup copy is no longer sufficient. Customers are asking whether they can trust the data, govern which agents and humans have access, and how quickly they can recover cleanly when something goes wrong.

Speaker #3: Commvault sits right there at the data layer. If the data is compromised, the business is compromised, and if the business can't recover that data to a clean, trusted state, the AI system can't be trusted either.

Speaker #3: We provide the fixes and solutions that enable customers to adopt AI securely and responsibly, with clean, trusted, and increasingly automated recovery. As AI deployments accelerate in the enterprise, we continue to innovate to help organizations navigate this shift.

Sanjay Mirchandani: We provide the picks and shovels that enable customers to adopt AI securely and responsibly with clean, trusted, and increasingly automated recovery. As AI deployments accelerate in the enterprise, we continue to innovate to help organizations navigate the shift. In Q1, we announced new capabilities to help businesses confidently adopt AI while maintaining control over their data, agents, and resiliency. We believe these offerings will help organizations activate data safely for AI while extending discovery, governance, control, and resilience across hybrid environments. We'll share more later when they become generally available. Our Commvault Cloud platform is a differentiator in how we win in an AI-first world. Today, customers run hybrid environments that leverage decades of infrastructure on-prem and in the cloud, including SaaS applications, legacy systems, and now AI workloads. Upstart competitors were built around a single use case or technology cycle.

Speaker #3: In Q1, we announced new capabilities to help businesses continually adopt AI while maintaining control over their data, agents, and resiliency. We believe these offerings will help organizations activate data safely for AI, while extending discovery, governance, control, and resilience across hybrid environments.

Speaker #3: We'll share more later when they become generally available. Our Commvault Cloud Platform is a differentiator in how we win in an AI-first world. Today, customers run hybrid environments that leverage decades of infrastructure—on-prem and in the cloud—including SaaS applications, legacy systems, and now AI workloads.

Speaker #3: Upstart competitors were built around a single use case or technology cycle. COMMVAULT has 30 years of innovation experience and offers a breadth of coverage that is unique in our industry.

Sanjay Mirchandani: Commvault has 30 years of innovation experience and offers a breadth of coverage that is unique in our industry. This breadth is evidenced by Clumio, which is one of our strongest year-over-year growth drivers in our SaaS portfolio. Purpose-built for the cloud-native environments, Clumio helps teams recover large-scale data sets quickly and cost-effectively without the burden of deploying or managing additional infrastructure. We believe this momentum will continue as companies strengthen their resilience strategies and protect AI data and large cloud workloads. While most enterprises are well into their cloud journeys, enterprise AI adoption is still in its early experimental stage. Organizations are testing carefully, and they want assurance that they can innovate without putting their data at risk. Commvault delivers that on one platform, protecting data, governing access, identifying risks, and most importantly, recovering quickly when something goes wrong.

Speaker #3: This breadth is evidenced by CLUMIO, which is one of our strongest year-over-year growth drivers in our SaaS portfolio. Purpose-built for the cloud-native environments, CLUMIO helps teams recover large-scale datasets quickly and cost-effectively, without the burden of deploying or managing additional infrastructure.

Speaker #3: We believe this momentum will continue, as companies strengthen their resilience strategies and protect AI data and large cloud workloads. While most enterprises are well into their cloud journeys, enterprise AI adoption is still in its early, experimental stage.

Speaker #3: Organizations are testing carefully, and they want assurance that they can innovate without putting their data at risk. Commvault delivers that on one platform—protecting data and governing access, identifying risk, and, most importantly, recovering quickly when something goes wrong.

Speaker #3: Now, let's discuss a recent customer win from the quarter that illustrates our differentiation—our ability to deliver resilience across some of the largest and most complex data estates.

Sanjay Mirchandani: Now let's discuss a recent customer win from the quarter that illustrates our differentiation, our ability to deliver resilience across some of the largest and most complex data estates. In Q1, we landed a pre-IPO company that was struggling to understand and control their data across multiple cloud environments, including Snowflake, S3, and GovCloud. The customer required visibility and answers to simple but critical questions. Who has access to the data? Can that access be revoked automatically? Do they have the audit trails that satisfy regulators and investors alike? In partnership with AWS, Commvault delivered a modern data security foundation with full access governance. Customer examples such as this underscore that for an enterprise to be truly resilient, it must move beyond traditional backup, embracing comprehensive tools like proactive threat detection, application rebuild, and verification tools that measure data integrity and trustworthiness.

Speaker #3: In Q1, we landed a pre-IPO company that was struggling to understand and control their data across multiple cloud environments, including Snowflake, S3, and GovCloud.

Speaker #3: The customer required visibility and answers to simple but critical questions. Who has access to the data? Can that access be revoked automatically? Do they have the audit trails that satisfy regulators and investors alike?

Speaker #3: In partnership with AWS, COMMVAULT delivered a modern, data-security foundation with full access governance. Customer examples such as this underscore that for an enterprise to be truly resilient, it must move beyond traditional backup, embracing comprehensive tools, like proactive threat detection, application rebuild, and verification tools that measure data integrity and trustworthiness.

Speaker #3: Our platform delivers this functionality, and we're seeing traction with these newer offerings, especially identity resilience, which continues to be a key on-ramp to the Commvault Cloud Platform.

Sanjay Mirchandani: Our platform delivers this functionality. We're seeing traction with these newer offerings, especially identity resilience, which continues to be a key on-ramp to the Commvault Cloud Platform. Here's why. Identity compromise is often the primary target in a cyber attack because it's the gateway to an organization's IT environment. AI exponentially increases the number of non-human identities and agents that can be used to maliciously attack. It compresses the time it takes to exploit vulnerabilities, putting your enterprise at risk. We enable our customers to confidently roll back to a trusted clean state to rapidly restore the business operations. This is becoming a board-level priority. To that point, we recently landed a global oil and gas customer after it experienced a cyber attack that exposed their fragmented data protection strategy. Their Active Directory instance was compromised, making business restoration slow and challenging.

Speaker #3: Here's why. Identity compromise is often the primary target in a cyber attack because it's the gateway to an organization's IT environment. AI exponentially increases the number of non-human identities and agents that can be used to maliciously attack, and it compresses the time it takes to exploit vulnerabilities.

Speaker #3: Putting your enterprise at risk. We enable our customers to confidently roll back to their trusted, clean state to rapidly restore their business operations. This is becoming a board-level priority.

Speaker #3: To that point, we recently landed a global oil and gas customer after it experienced a cyberattack that exposed their fragmented data protection strategy.

Speaker #3: Their Active Directory instance was compromised, making business restoration slow and challenging. By eliminating legacy vendors and consolidating onto the Commvault Cloud Platform, this customer remediated its resilience gaps and embraced a suite of capabilities, including VM protection, Commvault Airgap, and identity resilience, to automate identity protection and recovery.

Sanjay Mirchandani: By eliminating legacy vendors and consolidating onto the Commvault Cloud Platform, this customer remediated its resilience gaps and embraced a suite of capabilities including VM protection, Commvault Air Gap, and identity resilience to automate identity protection and recovery. These are not isolated product sales. They're reflective of the strength of the broader platform and what we believe will drive the subscription growth that supports our long-term financial model. This momentum underscores why our ecosystem is more important than ever. The easier it is for customers to discover and use Commvault natively within the cloud where their data already resides, the faster platform adoption accelerates. That is why in Q1, we expanded our ecosystem through our strategic partnership with Microsoft. Commvault cyber resilience capabilities will be available as a native ISV service on Microsoft Azure, making it easier for customers to integrate resilience directly into their Azure workloads.

Speaker #3: These are not isolated product sales. They're reflective of the strength of the broader platform and what we believe will drive the subscription growth that supports our long-term financial model.

Speaker #3: This momentum underscores why our ecosystem is more important than ever. The easier it is for customers to discover and use Commvault natively within the cloud, where their data already resides, the faster platform adoption accelerates.

Speaker #3: That is why, in Q1, we expanded our ecosystem through our strategic partnership with Microsoft. Commvault cyber resilience capabilities will be available as a native ISV service on Microsoft Azure, making it easier for customers to integrate resilience directly into their Azure workflows.

Speaker #3: This helps organizations move faster, while maintaining the data security, trust, and resiliency they need. In closing, let me leave you with some key takeaways.

Sanjay Mirchandani: In closing, let me leave you with some key takeaways. First, AI is expanding the surface area for data disruption and cyber attacks. Resilience is increasing in importance. Commvault sits at the center of that shift. As data and agents grow, so does Commvault. Second, our platform strategy is delivering results. We added new customers, expanded multi-product adoption, continued to drive strong SaaS growth, reinforcing our position as a leader in cyber resilience. Third, we're scaling this business in a disciplined way. This quarter, strong ARR growth, record profitability, and growing free cash flow came together, demonstrating that Commvault is converting cyber resilience leadership into a highly profitable cash generative business.

Speaker #3: First, AI is expanding the surface area for data disruption and cyber attacks. Resilience is increasing in importance, and Commvault sits at the center of that shift.

Speaker #3: As data and agents grow, so does COMMVAULT. Second, our platform strategies delivering results. We added new customers, expanded multi-product adoption, and continue to drive strong SaaS growth, reinforcing our position as a leader in cyber resilience.

Speaker #3: Third, we're scaling this business in a disciplined way. This quarter, strong ARR growth, record profitability, and growing pre-cash flow came together, demonstrating that Commvault is converting cyber resilience leadership into a highly profitable, cash-generative business.

Speaker #3: Finally, our business didn't miss a beat as we've successfully transitioned some key management roles, including Jeff Hayden as our president of Customer and Field Operations, and Gary Merrill back as our CFO.

Sanjay Mirchandani: Finally, our business didn't miss a beat as we've successfully transitioned some key management roles, including Geoff Haydon as our President of Customer and Field Operations, and Gary Merrill back as our CFO. Now, I'll turn things over to Gary to walk through the financial results and our outlook.

Speaker #3: Now, I'll turn things over to Gary to walk through the financial results and our outlook.

Speaker #2: Thank you, Sanjay. And good morning, everyone. We delivered a strong start to fiscal year '27, exceeding our guidance across all fiscal Q1 metrics. Our performance was driven by our three foundational growth pillars: new customer additions, upsell and cross-sell of our Commvault Cloud Platform, and new product momentum.

Gary Merrill: Thank you, Sanjay, and good morning, everyone. We delivered a strong start to fiscal year 2027, exceeding our guidance across all Q1 metrics. Our performance was driven by our three foundational growth pillars: new customer additions, upsell and cross-sell of our Commvault Cloud Platform, and new product momentum. This is our first time reporting under the simplified framework we introduced last quarter, which more accurately reflects the momentum of our subscription business. Let's jump into our fiscal Q1 results in more detail. I'll start with subscription ARR and free cash flows, which are our North Star metrics. We encourage you to evaluate these metrics on an annual basis, which aligns to how we plan and manage our business. In Q1, subscription ARR increased 22% to $1.05 billion. We added $39 million in net new subscription ARR, driven by continued strength in our SaaS offerings.

Speaker #2: This is our first time reporting under the simplified framework we introduced last quarter, which more accurately reflects the momentum of our subscription business. So, let's jump into our fiscal Q1 results in more detail.

Speaker #2: I'll start with subscription ARR and free cash flows, which are our North Star metrics. We encourage you to evaluate these metrics on an annual basis, which is aligned to how we plan and manage our business.

Speaker #2: In Q1, subscription ARR increased 22% to $1.05 billion. We added $39 million in net new subscription ARR, driven by continued strength in our SaaS offerings.

Gary Merrill: SaaS ARR grew 38% to $424 million, reflecting both new customer growth and healthy expansion from existing customers during the quarter. We surpassed 10,000 active SaaS customers, an important milestone for Commvault. Our Q1 subscription net dollar retention was 114%, consistent with last quarter. As a reminder, subscription net dollar retention includes both our term software and SaaS contracts measured on an annualized basis using the trailing four-quarter average. Our subscription ARR growth continues to be supported by a strong uptake of our software and SaaS identity resilience and data security offerings, which represented more than one-third of net new subscription ARR. In addition, we are delivering strong growth in some of our emerging SaaS offerings, including Clumio S3 protection, Google Workspace, and Azure DevOps. In Q1, 49% of Commvault managed SaaS customers were using two or more products versus 42% one year ago.

Speaker #2: SaaS ARR grew 38% to $424 million, reflecting both new customer growth and healthy expansion from existing customers during the quarter. We surpassed 10,000 active SaaS customers, an important milestone for Commvault.

Speaker #2: Our Q1 subscription net dollar retention was 114%, consistent with last quarter. As a reminder, subscription net dollar retention includes both our term software and SaaS contracts, measured on an annualized basis using the trailing four-quarter average.

Speaker #2: Our subscription ARR growth continues to be supported by a strong uptake of our software and SaaS identity resilience and data security offerings, which represented more than one-third of net new subscription ARR.

Speaker #2: In addition, we are delivering strong growth in some of our emerging SaaS offerings, including Chrome OS 3 Protection, Google Workspace, and Azure DevOps. In Q1, 49% of Commvault-managed SaaS customers were using two or more products, versus 42% one year ago.

Speaker #2: Now, moving to free cash flows. Q1 free cash flow was $51 million year over year, reflecting strong collections on prior quarter sales and continued cash discipline across the business.

Gary Merrill: Now moving to free cash flows. Q1 free cash flow was $51 million, growing 71% year-over-year, reflecting strong collections on prior quarter sales and continued cash discipline across the business. Our strong Q1 free cash flow puts us on pace against our full year expectations. Now I'll discuss our income statement performance. Q1 subscription revenue grew 16% to $267 million, fueled by SaaS revenue through 39% year-over-year. Subscription revenue accelerated to 85% of total revenue compared to 81% in the prior year. For the first time, SaaS revenue surpassed the $100 million quarterly revenue mark. Our other revenue lines performed in line with our expectations, resulting in total revenue growth of 11% to $314 million. Turning to profitability, Q1 gross margin reached 82.1%, which includes SaaS margins of 70.6%, an increase of 635 basis points year-over-year.

Speaker #2: Our strong Q1 free cash flow puts us on pace against our full-year expectations. Now, I'll discuss our income statement performance. Q1 subscription revenue grew 16% to $267 million.

Speaker #2: Fueled by SaaS revenue, it grew 39% year over year. Subscription revenue accelerated to $85% of total revenue, compared to 81% in the prior year.

Speaker #2: And for the first time, SaaS revenue surpassed the $100 million quarterly revenue mark. Our other revenue lines performed in line with our expectations, resulting in total revenue of $215 million.

Speaker #2: Turning to profitability, Q1 gross margin reached 82.1%, which includes SaaS margins of 70.6%, an increase of 635 basis points year over year. Crossing the 70% SaaS margin threshold is another major milestone for us and demonstrates the scale of our business, as well as ongoing product optimization, successful acquisition integration, and strategic agreements with our hyperscaler partners.

Gary Merrill: Crossing the 70% SaaS margin threshold is another major milestone for us and demonstrates the scale of our business, as well as ongoing product optimization, successful acquisition integration, and strategic agreements with our hyperscaler partners. We expect our SaaS gross margin to continue around these fiscal Q1 levels. Q1 operating expenses increased 7% to $185 million, representing 59% of total revenue, an improvement of 200 basis points year over year. Our head count was roughly flat year over year, which facilitates margin expansion opportunity while also allowing for reinvestment in strategic go-to-market and product initiatives. non-GAAP EBIT grew to $71 million, representing a non-GAAP EBIT margin of 22.8%, a 210 basis point improvement year over year. This was our best quarterly EBIT margin performance in over a decade and demonstrates our ability to drive margin expansion while continuing to grow subscription ARR. Moving to share repurchase activity.

Speaker #2: We expect our SaaS gross margins to continue around these fiscal Q1 levels. Q1 operating expenses increased 7% to $185 million, representing 59% of total revenue.

Speaker #2: An improvement of 200 basis points year over year. Our headcount was roughly flat year over year, which facilitates margin expansion opportunity while also allowing for reinvestment in strategic go-to-market and product initiatives.

Speaker #2: Non-GAAP EBIT grew to $71 million, representing a non-GAAP EBIT margin of 22.8%, a 210 basis point improvement year over year. This was our best quarterly EBIT margin performance in over a decade, and demonstrates our ability to drive margin expansion while continuing to grow subscription ARR.

Speaker #2: Moving to share repurchase activity. During the quarter, we repurchased approximately 98,000 shares for a total consideration of $10 million. We view this as an initial step toward our fiscal year '27 capital allocation objectives, and expect repurchase activity to increase over the coming quarters.

Gary Merrill: During the quarter, we repurchased approximately 98,000 shares for total consideration of $10 million. We view this as an initial step toward our fiscal year 2027 capital allocation objectives and expect repurchase activity to increase over the coming quarters. Our goal remains to return at least 60% of annual free cash flow to shareholders through share repurchases while maintaining balance sheet flexibility. Now turning to guidance. We continue to manage the business against our subscription ARR, subscription revenue, EBIT, and free cash flow objectives. While quarterly performance can be influenced by deal mix, renewal timing, contract duration, and seasonal patterns across our global markets, our focus remains on delivering against these full-year commitments. We believe this provides the clearest view of the underlying trajectory of the business. For fiscal Q2, we expect subscription revenue of $264 to $268 million, representing year over year growth of 20% at the midpoint.

Speaker #2: Our goal remains to return at least 60% of annual free cash flow to shareholders through share repurchases while maintaining balance sheet flexibility. Now, turning to guidance.

Speaker #2: We continue to manage the business against our subscription ARR, subscription revenue, EBIT, and free cash flow objectives. While quarterly performance can be influenced by deal mix, renewal timing, contract duration, and seasonal patterns across our global markets, our focus remains on delivering against these full-year commitments.

Speaker #2: We believe this provides the clearest view of the underlying trajectory of the business. For fiscal Q2, we expect subscription revenue of $264 to $268 million, representing year over year growth of 20% at the midpoint.

Speaker #2: This would result in 310 million dollars of total revenue. We expect EBIT margins of approximately 20%, and a diluted share count of approximately 42 million shares.

Gary Merrill: This would result in $310 million of total revenue. We expect EBIT margins of approximately 20% and a diluted share count of approximately 42 million shares. For the full fiscal year 2027, we reiterate our guidance of subscription ARR in the range of $1.20 billion to $1.21 billion, representing growth of approximately 19% at the midpoint. Subscription ARR growth will continue to be led by our SaaS offerings, which we expect to exceed $500 million of ARR by the end of fiscal 2027. We are increasing our subscription revenue guidance to a range of $1.119 billion to $1.129 billion, representing approximately 16% year over year growth at the midpoint. We continue to expect total revenue of $1.30 billion to $1.31 billion. In addition, for fiscal 2027, we are increasing our full year non-GAAP EBIT margin guidance by 50 basis points to approximately 21%.

Speaker #2: For the full fiscal year 2027, we reiterate our guidance of subscription ARR in the range of $1.20 billion to $1.21 billion, representing growth of approximately 19% at the midpoint.

Speaker #2: Subscription ARR growth will continue to be led by our SaaS offerings, which we expect to exceed $500 million of ARR by the end of fiscal 2027.

Speaker #2: We are increasing our subscription revenue guidance to a range of $1.119 billion, to $1.129 billion. Representing approximately 16% year over year growth at the midpoint.

Speaker #2: We continue to expect total revenue of $1.30 billion to $1.31 billion. In addition, for fiscal 2027, we are increasing our full-year non-GAAP EBIT margin guidance by 50 basis points, to approximately 21%.

Speaker #2: We continue to expect full-year free cash flows of $250 to $260 million, weighted toward the second half of the fiscal year, with a diluted share count of approximately 42 million shares.

Gary Merrill: We continue to expect full year free cash flows of $250 to $260 million, weighted towards the second half of the fiscal year.

Sanjay Mirchandani: With a diluted share count of approximately 42 million shares. In closing, cyber resilience remains a strategic priority for organizations navigating an increasingly AI-driven world. We continue to see meaningful opportunities to both win new customers and expand our existing relationships to drive sustainable growth, margin expansion, strong free cash flow generation, and long-term shareholder value. With that, I'll open the call for questions. Operator?

Gary Merrill: With a diluted share count of approximately 42 million shares. In closing, cyber resilience remains a strategic priority for organizations navigating an increasingly AI-driven world. We continue to see meaningful opportunities to both win new customers and expand our existing relationships to drive sustainable growth, margin expansion, strong free cash flow generation, and long-term shareholder value. With that, I'll open the call for questions. Operator?

Speaker #2: In closing, cyber resilience remains a strategic priority for organizations navigating an increasingly AI-driven world. And we continue to see meaningful opportunities to both win new customers and expand our existing relationships to drive sustainable growth, margin expansion, strong free cash flow generation, and long-term shareholder value.

Speaker #2: With that, I'll open the call for questions. Operator?

Speaker #1: Thank you. Ladies and gentlemen, we will now begin the question and answer session. And at this time, I would like to remind everyone in order to ask a question, please press star, followed by the number one on your telephone keypad.

Operator: Thank you. Ladies and gentlemen, we'll now begin the question and answer session. At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number 1 on your telephone keypad. Again, press star 1 if you would like to ask a question. Our first question comes from the line of Aaron Rakers with Wells Fargo. Please go ahead.

Operator: Thank you. Ladies and gentlemen, we'll now begin the question and answer session. At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Again, press star one if you would like to ask a question. Our first question comes from the line of Aaron Rakers with Wells Fargo. Please go ahead.

Speaker #1: Again, press star one if you would like to ask a question. Our first question comes from the line of Aaron Rakers with Wells Fargo.

Speaker #1: Please go ahead.

Speaker #3: Yeah, thanks for taking the question, and congrats on the results. I guess I want to start maybe just with the demand environment that you're seeing, especially following IBM's commentary that they saw a dramatic kind of reprioritization of capital expenditure plans across enterprise budgets exiting this June quarter.

Aaron Rakers: Thanks for taking the question, congrats on the results. I guess I want to start maybe just with the demand environment that you're seeing, especially following IBM's commentary that they saw a dramatic kind of reprioritization of capital expenditure plans across enterprise budgets exiting this June quarter. Sanjay, I'd love to hear kind of like, as you think about the linearity through the quarter, how do you characterize the demand environment right now?

Speaker #3: So Sanjay, I'd love to hear kind of like as you think about the linearity through the quarter, how would you characterize the demand environment right now?

Speaker #4: You know, overall, our demand stays strong, and the results reflect a pipeline that we've been building over the course of many quarters. As we look forward and we look at Q2 and beyond, Aaron, demand looks strong.

Sanjay Mirchandani: Overall, our demand stays strong. The results reflect a pipeline that we've been building over the course of many quarters. As we look forward and we look at the Q2 and beyond, Aaron, demand looks strong. Now we are seeing that a lot more conversation around AI data workloads, which I think bodes well for us. I think the IBM commentary was also around data security and AI resilience prioritization. We do see that. It's early days on how enterprises are deploying mission-critical AI systems, there's no question about the fact that data is going to grow, and as data grows, it bodes well for us.

Speaker #4: Now, we are seeing a lot more conversation around AI data workloads, which I think bodes well for us. I think the IBM commentary was also around data security and AI resilience prioritization.

Speaker #4: We do see that. It's early days on how enterprises are deploying mission-critical AI systems. But there's no question about the fact that data is going to grow.

Speaker #4: And as data grows, it bodes well for us.

Aaron Rakers: Yeah. Then as a quick follow-up, just on the Microsoft announcement through this last quarter, maybe just walk us through kind of what's changed, the highlights of what seems to be a continually deepening relationship with Microsoft, that'd be helpful. Thank you.

Speaker #3: Yeah. And then there’s a quick follow-up. Just on the Microsoft announcement through this last quarter—maybe just walk us through what's changed, what are the highlights of what seems to be a continually deepening relationship with Microsoft.

Speaker #3: That'd be helpful. Thank you.

Speaker #4: Sure, absolutely. As a company, we've had a relationship with Microsoft for over 25 years, so it's always been a very solid and important relationship.

Sanjay Mirchandani: Sure. Absolutely. As a company, we've had a relationship with Microsoft for over 25 years. It's always been a very solid and important relationship. Periodically we go back to the drawing board and reset what the priorities are for them, for us, and how we work better together. This agreement really does, I'd say, three things. One is having better and deeper engineering connections. We've always had that. This continues to say, we're building a lot of AI and AI resilience and how the platforms work better together. The second is meeting customers where they are. For that, it's being a native service inside of Azure, being more integrated into the marketplace, and things like that. So it's easier for the customer to just be able to click and use AI-level resilience inside of the Microsoft cloud offerings.

Speaker #4: And then periodically, we go back to the drawing board and reset what the priorities are for them, for us, and how we both get better together.

Speaker #4: So this agreement really does, I'd say, three things. One is, having better and deeper engineering connections. We've always had that. This continues to say, we're building a lot of AI and AI resilience and how the platforms work better together.

Speaker #4: The second is meeting customers where they are. And for that, it's being a native service inside of Azure, being more integrated into the marketplace, and things like that.

Speaker #4: So it's easier for the customer to just be able to click and use AI-level resilience inside the Microsoft cloud offerings. And the third is just, from time to time, deepening executive relationships and alignment.

Sanjay Mirchandani: The third is just from time to time, deepening executive relationships and alignment. If I had to net it out, those are the three big areas within the announcement.

Speaker #4: So if I had to net it out, those are the three big areas within the announcement.

Speaker #3: Yeah. Thank you.

Aaron Rakers: Yeah. Thank you.

Speaker #1: Our next question comes from the line of Freddie Kessinger with A. Davidson. Please go ahead.

Operator: Our next question comes from the line of Rudy Kessinger with D.A. Davidson. Please go ahead.

Speaker #5: Great. Thanks for taking my questions, guys. First one, Gary, FX, the dollar strength and the bit versus last quarter, was that any meaningful headwind to ARR in a quarter-over-quarter basis?

Rudy Kessinger: Great. Thanks for taking my questions, guys. First one, Gary, FX, the dollar strength in the bit versus last quarter, was that any meaningful headwind to ARR on a quarter-over-quarter basis? Within your revised FY2027 ARR guide being just reiterated?

Speaker #5: And within your revised FY27 ARR guide, being just reiterated?

Speaker #6: Hey, Rudy, good to talk to you this morning. So just framing overall, we are staying consistent with the simplified framework that we talked about last quarter, guiding ARR on an annual basis.

Gary Merrill: Hey, Rudy, good to talk to you this morning. Just framing overall, we are staying consistent with the simplified framework that we talked about last quarter, guiding ARR on an annual basis. Specifically related to your question on FX, yes, there was a small to modest impact on related FX as it relates to net new ARR. If we were to use the beginning of quarter rates, subscription net new ARR would have been in the low 40s as it relates to millions. A few million-dollar headwind to subscription ARR.

Speaker #6: Specifically, related to your question on FX, yes, there was a small to modest impact on related FX as it relates to net new ARR.

Speaker #6: If we were to use the beginning of quarter rates, subscription net new ARR would have been in the low $40 million range.

Speaker #6: So, a few million dollar headwind to subscription ARR.

Speaker #5: Got it. Super helpful. And then I want to ask, just with memory prices, supply chain issues—what's the update there over the last 90 days?

Rudy Kessinger: Got it. Super helpful. Then I want to ask, just with memory prices, supply chain issues, just what's the update there last 90 days? I think a lot of us on this call probably continue to hear a lot of chaos from the channel in terms of customers and their inability to get hardware. What are you guys seeing there? Did that worsen at all versus last quarter? How are you positioned to handle that going forward?

Speaker #5: I think a lot of us on this call probably continue to hear a lot of chaos from the channel in terms of customers and their inability to get hardware.

Speaker #5: So what are you guys seeing there? Did that worsen at all versus last quarter? And how are you positioned to handle that going forward?

Speaker #6: Rudy, it's Gary again. I'll handle this one. I would say the hardware constraints that are broadly in the market played out as anticipated. And as expected, hardware availability does impact some of our deals. Obviously, as our software in the on-premise market is tied to hardware.

Gary Merrill: Rudy, it's Gary again. I'll handle this one. I would say the hardware constraints that are broadly in the market played out as anticipated and as expected. Hardware availability, it does impact some of our deals. Obviously, as our software in the on-premise market is tied to hardware. We manage that as part of our overall pipeline. We're managing the puts and takes on the pipeline and navigating the specific issues that come up related to hardware availability only. It's a timing. That's why the platform approach that we have, and you can see the strength in our SaaS business, we have that flexibility, and we continue to see that acceleration on the SaaS side of the business. When you balance it out, we're pleased overall with the performance. Even the contribution from term software, net new ARR was sequentially flatlined.

Speaker #6: However, we manage that as part of our overall pipeline. So we're managing the puts and takes on the pipeline and navigating the specific issues that come up related to hardware availability only.

Speaker #6: So, to timing—and that's why the platform approach that we have, and you can see the strength in our SaaS business—we have that flexibility, and we continue to see that acceleration on the SaaS side of the business.

Speaker #6: And when you balance it out, we're pleased overall with the performance. Even the contribution from term software, net new ARR, was sequentially flatlined. So you can kind of see that we're at a steady state.

Gary Merrill: You can kind of see that we're at a steady state, and as we manage that availability, we have opportunity to build from where we're at now.

Speaker #6: And as we manage that availability, we have the opportunity to build from where we're at now.

Speaker #4: Yeah, the one more thing. One of the things that our architecture actually lends itself to is it's without getting super technical, it's a decoupled architecture.

Sanjay Mirchandani: Yeah. One of the things that our architecture actually lends itself to is, without getting super technical, it's a decoupled architecture. We can sweat the existing assets for customers a little longer should they need it, should there be a delay. We work with them and with our hardware partners and offer them up SaaS, as Gary said. All in all, we've got a multi-pronged attack set up to address the supply chain issues.

Speaker #4: And so we can sweat the asset for existing assets for customers a little longer, should they need it, should there be a delay. So, we work with them and with our hardware partners and offer them up SaaS, as Gary said.

Speaker #4: So all in all, we've got a multi-pronged attack set up to address the supply chain issues.

Rudy Kessinger: Great. Thanks, guys. Appreciate it.

Speaker #5: Great. Thanks, guys. Appreciate it.

Speaker #1: Our next question comes from the line of Howard Ma with Guggenheim Securities. Please go ahead.

Operator: Our next question comes from the line of Howard Ma with Guggenheim Securities. Please go ahead.

Howard Ma: Hey, thanks, and good morning, guys. I also want to ask about the impact of hardware prices on buying behavior. In the case of data protection sold as term subscription, we've been hearing that some customers might make room for new storage devices by buying shorter term deals, but we just don't know how widespread that is. Meanwhile, you just mentioned there are other customers that might sweat assets, and Commvault lends itself to that, Sanjay. In those cases, maybe it doesn't impact term duration, but then you can only sweat those assets for so long. There's obviously a third piece too. You have a large cloud business, and at least in theory, higher hardware prices should benefit cloud sales too. I guess the question for you guys is, are you seeing all of those things happen?

Speaker #3: Hey, thanks, and good morning, guys. I also want to ask about the impact of hardware prices on buying behavior. And, in the case of data protection sold as a term subscription, we've been hearing that some customers might make room for new storage devices by buying shorter-term deals.

Speaker #3: But we just don't know how widespread that is. And then meanwhile, you just mentioned there are other customers that might sweat assets. And COMBALT lends itself to that, Sanjay.

Speaker #3: So in those cases, maybe it doesn't impact term duration, but then you can only sweat those assets for so long. And then there's obviously a third piece too—if you have a large cloud business, at least in theory, higher hardware prices should benefit cloud sales too.

Speaker #3: So, I guess the question for you guys is: are you seeing all of those things happen? I imagine probably so, but is there a predominant pattern that we should consider?

Howard Ma: I imagine probably so, but is there a predominant pattern that we should consider? When we modeled ARR revenue for the rest of the year, is there a predominant pattern?

Speaker #3: And so, when we modeled ARR and revenue for the rest of the year, is there a predominant pattern?

Speaker #6: Howard, it's Gary. I'll jump in on a few of them. You had a couple of different questions from different angles, so I'll hit maybe some of the more specific items directly affecting our business.

Gary Merrill: Howard, it's Gary. I'll jump in on a few of them. You had a couple different questions from different angles, I'll hit maybe some of the more specific items that directly affect our business. Term. You hit term in the intro part. Term is a consideration in our software business, obviously for the reasons that you identified as they think about what their data state looks as they look out two to three years. Okay? In the quarter, we did see some modest headwinds on term. Now we're able to overcome that with strong performance and strong close rates where we outperformed our subscription revenue side. We did see mid-single digits sequentially impact on term length, and that is specifically attributable to the hybrid environment that our customers operate in.

Speaker #6: Term. So, you hit term in the initial parts. Term is a consideration in our software business, obviously, for the reasons that you identified, as they think about what their data state looks like as they look out to two, three years, okay?

Speaker #6: So in the quarter, we did see some modest headwinds on term. Now, we were able to overcome that with a strong performance and strong close rates, where we outperformed on our subscription revenue side.

Speaker #6: But we did see a mid-single-digit sequential impact on term length, and that is specifically attributable to the hybrid environment that our customers operate in.

Speaker #6: From a margin perspective, if you kind of look at our results, we're operating very effectively on a margin basis. Particularly if you look at our gross margins—right? Very strong gross margins; 10-year high on EBIT margins.

Gary Merrill: From a margin perspective, if you look at our results, we're operating very effectively on a margin basis, particularly if you look at our gross margins. Very strong gross margins. 10-year high on EBIT margins. That kind of lends itself to the momentum we see on the SaaS or the cloud side of the business, where customers can also prioritize their cloud projects, tied to kind of our SaaS and cloud offerings, where we have less significant impact on pricing and infrastructure, and actually where we're actually getting scale in the business.

Speaker #6: So that kind of lends itself to the momentum we see on the SaaS or the cloud side of the business, where customers can also prioritize their cloud projects tied to our SaaS and cloud offerings, where we have less significant impact on pricing and infrastructure.

Speaker #6: And actually, where we're truly getting scale in the business.

Speaker #3: Okay, that's great. And just as a follow-up for Sanjay, you described COMBALT's agentic resilience strategy in your prepared remarks. Can you elaborate on specifically which products are targeted at helping enterprises?

Howard Ma: Okay, that's great. Just as a follow-up for Sanjay, you described Commvault's agentic resilience strategy in your prepared remarks. Can you elaborate on specifically which products are targeted at helping enterprises? I guess I think of it as three things, and I'm probably missing some, but it's tracking the data that agents access, detecting which data is compromised, and then importantly, rolling back or recovering to more secure states.

Speaker #3: I guess I think of it as three things, but I'm probably missing some. It's tracking the data that agents access, detecting which data is compromised, and then, importantly, rolling back or recovering to more secure states.

Speaker #4: Yeah. So the products that I mentioned were the agentic library that allows customers to be able to use core capabilities around the product fully agentically.

Sanjay Mirchandani: Yeah. The products that I mentioned were the agentic library, that allows customers to be able to use core capabilities around the product fully agentically. We call that AI Studio. Then we have Data Activate, which sort of enables organizations to classify, curate data from protected backup copies and then prepare that for data feeds into their learning systems or AI training systems. The third is AI Protect, which will help organizations understand the full impact, the provenance of any agent-driven changes, recover the affected applications, and then proceed over time to do a full stack recovery across these AI environments. All of these are well on their way and expected over the course of the next few months.

Speaker #4: We call that AI Studio. And then we have Data Activate, which sort of enables organizations to classify and curate data from protected backup copies, and then prepare that for data feeds into their learning systems or AI training systems.

Speaker #4: And the third is AI Protect, which will help organizations understand the full impact and provenance of any agent-driven changes, recover the affected applications, and then proceed over time to a full-stack recovery across these AI environments.

Speaker #4: All of these are well on their way and are expected over the course of the next few months.

Speaker #3: Okay, thanks so much.

Howard Ma: Okay. Thanks so much.

Speaker #1: Thanks, Howard. Next question comes from the line of Param Singh with Oppenheimer. Please go ahead.

Gary Merrill: Thanks, Howard.

Sanjay Mirchandani: Thanks, Howard.

Operator: Our next question comes from the line of Param Singh with Oppenheimer. Please go ahead.

Speaker #5: Yeah, hi. Thanks for taking my question. I wanted to get a better understanding of your ARR guidance philosophy. Look, the underlying dynamics seem very strong.

Param Singh: Yeah. Hi. Thanks for taking my question. I wanted to kind of get a better understanding of your ARR guidance philosophy. Look, the underlying dynamics seem very strong. Big pipeline in identity resilience. I want to understand how much of your guidance is conservatism versus incorporating some of the real-time factors with the hardware pricing, such as move to SaaS workloads, push out of deals, or even discounting of software to kind of get deals through. Help me understand what's the push and pull in your thought process with the ARR guidance. Thank you. I have a follow-up after that.

Speaker #5: Big pipeline in identity resilience. I want to understand how much of your guidance is conservatism versus incorporating some of the real-time factors, such as the hardware pricing, move to SaaS workloads, push-out of deals, or even discounting of software to get deals through.

Speaker #5: So help me understand, what's the push and pull in your thought process with the ARR guide? Thank you. I had a follow-up after that.

Speaker #6: Okay, sure, Param. So I'll hit that, and then you can go back with your follow-up and talk through this morning. At a macro level, the strategic framework on guiding subscription net new ARR is an annual basis.

Gary Merrill: Okay, sure, Param. I'll hit that, and then you can come back with your follow-up. At a macro level, the strategic framework on guiding subscription net new ARR is an annual basis. We're off to a good start. Actually, we're right on pace at the end of Q1 where we expected to land. Okay? The guidance consumes all the current conditions that we see. The situations where there's hardware availability, and we're managing that on individual deals relative to our pipeline coverage. The current trends we see are baked into the guidance. We do not have an acceleration or rotation from on-premise to cloud incremental than what we see today.

Speaker #6: We're off to a good start. Actually, we're right on pace at the end of Q1 where we expected to land, okay? The guidance assumes all the current conditions that we see.

Speaker #6: So, the situations where there's hardware availability and we're managing that on individual deals—relative to our pipeline coverage—the current trends we see are baked into the guidance.

Speaker #6: We do not have an acceleration or rotation from on-premise to cloud. Incremental than what we see today. The key pieces to subscription net new ARR often happen at time of renewal for cross-sell with our rich platform, the cross-sell opportunity that we have, drives a very significant expand approach at time of renewal, at the same time.

Gary Merrill: The key pieces to subscription net NRR often happen at time of renewal for cross-sell. With our rich platform, the cross-sell opportunity that we have drives a very significant expand approach at time of renewal at the same time. Our renewal pools are generally bigger in H2, I think consistent with what we said, we will see probably a modest step up in fiscal Q2, and then the majority of our net new ARR will happen in H2, tied to the seasonality of our business.

Speaker #6: Our renewal pools are generally bigger in the second half, so I think consistent with what we said, we will see probably a modest step-up in fiscal Q2.

Speaker #6: And then the majority of our net new ARR will happen in the second half, tied to the seasonality of our business.

Param Singh: Understood. Thank you so much for that, Gary. As my follow-up, I want to understand how you're thinking about the share gain opportunity from Veritas NetBackup. My understanding is, there's a significant amount of renewal that's going to come in the next 12 to 24 months, that could be a large opportunity. I want to understand if there's a way to quantify that, and what do you see as something that could be an easy transition towards the Commvault platform?

Speaker #3: Understood. Thank you so much for that, Gary.

Speaker #5: And as my follow-up, what do I understand how are you thinking about the share gain opportunity from Veritas net backup? My understanding is there's a significant amount of renewal that's going to come in the next 12 to 24 months.

Speaker #5: So, that could be a large opportunity, but I want to understand if there's a way to quantify that. And what do you see as something that could be an easy transition towards the Commvault platform?

Sanjay Mirchandani: Hey, Param. It's Sanjay. That opportunity is something we track closely and is something that we continue to be consistently taking share in that space. I'm not going to be able to give you a number associated with it, but it's definitely something that we've been working with, working on, and continue to focus on. Our product, what's important to understand is, as much as old school backup is sticky, the world has evolved to resilience in a whole different way, and it's recovery plus. There's a lot more that needs to happen to protect yourself, get it ready for AI, move the workloads where they need to, and our platform delivers that. It's a value-based conversation.

Speaker #4: Hey, Param and Sanjay, that opportunity is something we track closely. And it's something that we continue to be consistently taking share in, in that space.

Speaker #4: I'm not going to be able to give you a number associated with it, but it's definitely something that we've been working with, working on, and continue to focus on.

Speaker #4: Our product—what’s important to understand is, as much as old-school backup is sticky, the world has evolved to resilience in a whole different way.

Speaker #4: And it's recovery plus-plus. There's a lot more that needs to happen to protect yourself, get it ready for AI, move the workloads where they need to, and our platform delivers that.

Speaker #4: So we it's a value-based conversation.

Speaker #3: Understood. Thank you so much, Sanjay.

Param Singh: Understood. Thank you so much, Sanjay.

Speaker #1: Howard, next question comes from the line of James Fish with Piper Sandler. Please go ahead.

Operator: Our next question comes from the line of James Fish with Piper Sandler. Please go ahead.

Speaker #3: Hey guys, some management transitions that you guys have talked about before, but we're one quarter into your year. Any sort of fine-tuning with the go-to-market approach at this point?

James Fish: Hey, guys. We're one quarter into your year. Any sort of fine-tuning with the go-to-market approach at this point? I guess, how are you guys looking to balance going after growth opportunities versus margin expansion here?

Speaker #3: I guess, how are you guys looking to balance going after growth opportunities versus margin expansion here?

Sanjay Mirchandani: Sanjay here. How are you? How are you, James? Let me see. It's Q1. Q1 is traditionally where you reset things, you revisit things. We did it. We were very thoughtful in being able to bring the leadership change all up in early Q1. A lot of the work had been done prior. I'd say that the big focus for us is we're getting way closer with our largest accounts globally, our strategic relationships. We continue to make sure that our SaaS offerings are well presented with the specialist team. It's a little bit of fine-tuning, it's really the stuff that Gary was doing as CRO, where Jeff is now putting his own fingerprints on it.

Speaker #4: Sanjay here. How are you? How are you doing? Let me see. It's Q1. Q1 is traditionally where you reset things, you revisit things, and we did it.

Speaker #4: We were very thoughtful in being able to bring the leadership change all up in early Q1. And a lot of the work had been done prior.

Speaker #4: So I say that the big focus for us is we're getting way closer with our largest accounts globally, our strategic relationships. We continue to make sure that our SaaS offerings are well presented with the specialist team.

Speaker #4: And it's a little bit of fine-tuning, but it's really the stuff that Gary was doing as CRO, where Jeff is now putting his own fingerprints on it, but at the core, the teams are very stable.

Sanjay Mirchandani: At the core, the teams are very stable. Our focus is on the segments where we felt we had opportunity, mainly in our SaaS business as well as in our strategic relationships.

Speaker #4: And our focus is on the segments where we felt we had opportunity, mainly in our SaaS business, as well as in our—more color on that.

James Fish: Yeah

Gary Merrill: Yeah

James Fish: a little more color on that.

Sanjay Mirchandani: Gary you can give a little more color on that.

Speaker #6: James, good to talk to you this morning. There are a few pieces where I would add more on the financial side. Is that what you're seeing—and what our shareholders can see now—is the scale opportunity that's in our model, okay?

Gary Merrill: James, good to talk to you this morning. A few pieces where I would add more on the financial side is that what you're seeing and what our shareholders can see now is the scale opportunity that's in our model. Okay. What I mean by that is if you take a step back and look at our opportunity to accelerate growth, we have that opportunity, but we have that opportunity to do that while we're still giving opportunity for margin expansion. The improvements we've made on our gross margins just in the past year, with our gross margins up over 600 basis points a year, which drives to the scale and efficiencies of a platform. Those scale and efficiencies free up investment opportunities.

Speaker #6: And what I mean by that is if you take a step back and look at our opportunity to accelerate growth, we have that opportunity.

Speaker #6: But we have that opportunity to do that while we're still giving opportunity for margin expansion. The improvements we've made on our gross margins just in the past year, with our gross margins up over 600 basis points year over year, which drives to the scale and efficiencies of a platform.

Speaker #6: And those scale and efficiencies free up investment opportunity. So what you'll see in our guidance is why we're raising our EBIT guidance for the full year by 50 basis points.

Gary Merrill: What you'll see in our guidance is while we're raising our EBIT guidance for the full year by 50 basis points, we will continue to invest. Okay. There is investment areas to take advantage of this opportunity. Those investments will continue to be in sales and marketing and our R&D as the focus area of our products. We're comfortable that we can make those investments while still scaling the business and driving free cash flow growth.

Speaker #6: We will continue to invest, okay? There are investment areas to take advantage of this opportunity. Those investments will continue to be in sales and marketing and R&D as the focus areas of our products.

Speaker #6: But we're comfortable that we can make those investments while still scaling the business and driving free cash flow growth.

James Fish: Makes sense. Maybe circling back to what Rudy asked around that managing the indirect hardware element, I don't know if there's a way to think about how much, I'll call it net push you're seeing potentially or customers even looking to cloud alternatively in pricing. Gary, just to put a fine tune on it, what was SaaS net retention rate this quarter only?

Speaker #3: Makes sense. And maybe circling back to what Rudy asked around that managing the indirect hardware element. I don't know if there's a way to think about how much I'll call it net push you're seeing potentially or customers even looking to cloud alternatively in pricing.

Speaker #3: And Gary just put a fine-tune on it. What was SaaS net retention rate this quarter only?

Speaker #6: Yeah, James, I’ll hit it. As we worked through the framework last quarter, simplifying everything around subscription and ARR, okay? Now, 114% reported subscription ARR.

Gary Merrill: Yeah. James, I'll hit it. As we worked through the framework last quarter, simplifying everything around subscription NRR. Okay? Now, 114% reported subscription NRR. That's flat sequentially and flat year-over-year. In order for that trend to remain at roughly 114%, that means that both the term side and the SaaS side have to be moving in the same direction. To give you a little color for this quarter as we transition into this model, in the definition way we reported, that would still keep SaaS NRR above 120%. Okay? I'll give you a trend through this transition. As I look out, I think a framework to think about subscription NRR going forward is probably ±200 basis points on either side. That's where I can see it staying for the remainder of the fiscal year.

Speaker #6: That's flat sequentially and flat year-over-year. In order for that trend to remain at roughly 114%, that means that both the term side and the SaaS side have to be moving in the same direction.

Speaker #6: So to give you a little color for this quarter as we transition into this model, in the definition way we reported, that would still keep SaaS and ARR above 120%, okay?

Speaker #6: So I'll give you a trend through this transition. As I look out, I think a framework to think about subscription and ARR going forward is probably plus or minus 200 basis points on either side.

Speaker #6: So that's kind of where I can see it staying for the remainder of the fiscal year.

Speaker #1: Howard, next question comes from the line of Todd Waller with Stephens. Please go ahead. Mr. Todd Waller, your line is open. Please go ahead.

Operator: Our next question comes from the line of Todd Weller with Stephens. Please go ahead. Mr. Todd Weller, your line is open. Please go ahead.

Gary Merrill: We'll come back to Todd. If we go to the next question, please, John.

Speaker #5: We'll come back to Todd. If we could go to the next question, please, John.

Speaker #1: Absolutely. Our next question comes from the line of Yun Kim with BMO Capital Markets. Please go ahead.

Operator: Absolutely. Our next question comes from the line of Hyun Kim with B. Riley Capital Markets. Please go ahead.

Speaker #3: All right. Thank you. Following up on previous questions regarding supply chain, is this changing the competitive dynamics out there as obviously some vendors are seeing greater impact versus others, including you guys?

Hyun Kim: All right, thank you. Following up on previous questions regarding supply chain, is this changing the competitive dynamics out there? As obviously some vendors are seeing greater impact versus others, including you guys. I do believe your architecture provides a very flexible options versus some of the other ones. Does that provide perhaps obviously some competitive advantage, but does that provide some tailwind to your new customer metric? Is this something that you're aggressively going after? How does that new Azure partnership announcement potentially add to that new customer metric this year? Thanks.

Speaker #3: And I do believe your architecture provides very flexible options versus some of the other ones. Does that provide, perhaps obviously, some competitive advantage? But does that also provide some tailwind to your new customer metric?

Speaker #3: Is this something that you're aggressively going after? And how does that new Azure partnership announcement potentially add to that new customer metric this year?

Speaker #3: Thanks.

Gary Merrill: Hey, good morning. It's Gary. I'll hit this. There's a couple competitive aspects I think let's frame. One is the architecture that we articulate is absolutely a competitive advantage, okay? You can see the trends in our business with our growth of our SaaS business and the opportunities that we give our customers to prioritize cloud workloads and cloud migrations, while also then working through the supply chain implications on premise, okay? One of the unique offerings that we have is even our Clumio business. Think about our Clumio business, which really helps resonate the cloud-native motion and particularly large-scale datasets like S3 protection where there's massive cloud workloads. With now an offering out there in the market that really increasingly thrives at these large data estates that are more cloud-native companies, that it's more AI-relevant workloads, right? There's massive opportunity out there, okay?

Speaker #6: Hey, this is good morning. It's Gary. I'll hit this. There's a couple competitive aspects, I think, let's frame. One is the architecture that we articulate is absolutely competitive advantage, okay?

Speaker #6: You can see the trends in our business with our growth of our SaaS business. And the opportunity that we give our customers to prioritize cloud workloads and cloud migrations while also then working through the supply chain implications on-premise, okay?

Speaker #6: One of the unique offerings that we have is even our Plumio business. Think about our Plumio business, which really helps resonate the cloud-native motion and particularly large-scale data sets like S3 protection, where there's massive cloud workloads.

Speaker #6: So with now an offering out there in the market that really increasingly drives at these large data states that are more cloud-native companies, that it's more AI-relevant workloads, there's massive opportunity as there, okay?

Speaker #6: The Plumio business is one of our fastest-growing businesses year over year. So the opportunity that we have for our customers to drive that cloud growth while working through any availability challenges that they may have that we work with them on just grow regardless of the market dynamics.

Gary Merrill: The Clumio business is one of our fastest-growing businesses year over year. The opportunities we have for our customers to drive that cloud growth while working through any availability challenges that they may have that we work with them on, just gives the opportunity for us to continue to growing regardless of the market dynamics.

Speaker #3: Okay, great. Do you expect that to drive your new customer ad metric, the new customer?

Hyun Kim: Okay, great. Do you expect that to drive your new customer add metric, the new customer?

Gary Merrill: Absolutely. Our SaaS business is the driver of our new customer business. Significantly, actually more than the on-premise business. If you think about we crossed over 10,000 SaaS customers this quarter, another major milestone. We hit some major milestones for our SaaS business. $100 million of quarterly revenue, 10,000 customer mark. When it pivots back to the new customer lens, what we find that 40% of our SaaS customers are net new to Commvault. We're driving massive new logo adoption with straight to our SaaS business, which is relevant to the product implications of meeting customers of where they're at.

Speaker #6: Absolutely. Our SaaS business is the driver of our new customer business—significantly, actually, more than the on-premise business. If you think about it, we crossed over 10,000 SaaS customers this quarter.

Speaker #6: Another major milestone—we hit the major milestones for our SaaS business: $100 million of quarterly revenue and the 10,000 customer mark. And when it pivots back to the new customer lens, what we find is that 40% of our SaaS customers are net new to Commvault.

Speaker #6: So we're driving massive new logo adoption straight to our SaaS business, which is relevant to that product or the product implications of meeting customers where they're at.

Speaker #3: Okay, great. And then are you seeing any changes in deal size or maybe even the deal velocity increasing as you continue to expand your product portfolio and obviously identity becoming more important part of your overall solution?

Hyun Kim: Okay, great. Are you seeing any changes in deal size or maybe even the deal velocity increasing, as you continue to expand your product portfolio and obviously, identity becoming a more important part of your overall solution?

Gary Merrill: No significant changes on ASP during the quarter, but where we do see strength is you look at the identity and data security pieces of our business, tied to our more simplified type framework that we drive measuring towards subscription ARR. We saw about a third of our subscription ARR, net new ARR, specifically from our identity and data security offerings. We continue to expect to see that, throughout the remainder of the fiscal year.

Speaker #6: No significant changes on ASP. They're in the quarter. But where we do see strength is you look at the identity and data security pieces of our business.

Speaker #6: Tied to our more simplified type framework that we drive, measuring towards subscription ARR, we saw about a third of our subscription ARR net new ARR specifically from our identity and data security offerings.

Speaker #6: And we continue to expect to see that throughout the remainder of the fiscal year.

Speaker #3: Okay, great. Thank you so much.

Hyun Kim: Okay, great. Thank you so much.

Speaker #1: Howard, next question comes from the line of Eric with Quebec Capital Markets. Please go ahead.

Operator: Our next question comes from the line of Eric Heath with KeyBanc Capital Markets. Please go ahead.

Eric Heath: Hey, thanks, Sanjay, Gary, for taking the questions. I guess one for Sanjay, one clarification for Gary. Sanjay, can you just talk more at a macro level, in cybersecurity and your business, just how conversations are changing in the past three to four months since Medusa and Glasswing come out. How has it impacted the customer conversations? Is it materializing in any way in terms of budgets or sales cycles? What's just the broader observation of behavior you're seeing with customers as they digest those?

Speaker #5: Hey, thanks, Sanjay. Gary, for taking the questions. I guess one for Sanjay, one clarification for Gary. So Sanjay, can you just talk more at a macro level in cybersecurity and your business, just how conversations are changing in the past three to four months since Meet Those and Glasswing come out?

Speaker #5: Has it impacted how has it impacted the customer conversations? Is it materializing in any way in terms of budgets or sales cycles? Or what's just the broader observation or behavior you're seeing with customers as that digests this?

Speaker #2: Yeah, no, it's a great question. And it's one that's top of mind for customers. I mean, I'll tell you that over the past few months, since the Frontier models started, we started looking at all the cyber impacts and the capabilities.

Sanjay Mirchandani: Yeah, it's a great question, and it's one that's top of mind to customers. I tell you that over the past few months, since the frontier models, we started looking at all the cyber impacts and the capabilities. We're having more conversations than ever. The questions are around things like non-human identities, okay? How do you control that? What's the blast radius? How fast can you roll stuff back? Is it even possible? The conversations are quite different than more traditional recovery conversations. Recently, I'll share an anecdotal experience. Recently, we hosted about 20 top CISOs as part of our partnership with Time Magazine. The questions were all about this, exactly this. Non-human identity, blast radius, how fast can you find it? It's early days in some of the more AI-enabled cyber attacks. It's absolutely a reality that everyone's thinking about.

Speaker #2: We're having more conversations than ever. And the questions are around things like non-human identities. Okay? And how do you control that? What's the blast radius?

Speaker #2: How fast can you roll stuff back? Is it even possible? The conversations are quite a bit different than more traditional recovery conversations. And recently, as I'll share, an anecdotal experience...

Speaker #2: Recently, we hosted about 20 top CISOs as part of our partnership at Time Magazine. And the questions were all about this—exactly this: non-human identity, blast radius, how fast can you find it?

Speaker #2: And it's early days in some of the more AI-enabled cyber attacks, but it's absolutely a reality that everyone's thinking about. Now, when data is also growing at a pace that it is with AI, there's more data in flight.

Sanjay Mirchandani: Now, when data is also growing at a pace that it is with AI, there's more data in flight, there's more data in more locations, there's more velocity of data. All of that matters. Having the provenance of what happened to what you can fix automatically becomes the question. That's sort of more of the tone and manner of what the conversations feel like, and it plays right to our platform.

Speaker #2: There's more data in more locations. There's more velocity of data. All of that matters. And having the provenance of what happened, and what you can fix automatically, becomes the question.

Speaker #2: So that's sort of more of the tone and manner of what the conversations feel like. And it plays right to our platform.

Eric Heath: Thanks, Sanjay. Gary, for you, just to maybe clarify some of your comments from throughout the call today. Looking at some of the subscription net new ARR and the seasonality there. Last year, we saw an increase in Q1 subscription net new ARR over Q4. We don't necessarily have an apples for apples comparison from a couple of years ago, anything to clarify when it comes to seasonality in the Q1, and was there a net headwind to the business from some of the supply chain dynamics and the term deals that you saw in the quarter? Just any color you can share in terms of how to think about the seasonality for Q2 subscription net new ARR. Thanks.

Speaker #5: Thanks, Sanjay. And then, Gary, for you, just to maybe clarify some of your comments from throughout the call today. I mean, looking at some of the subscription net new ARR and the seasonality there, I mean, last year, we saw an increase in Q1 subscription net new ARR over Q4.

Speaker #5: We don't necessarily have an apples-to-apples comparison from a couple of years ago, but is there anything you can clarify when it comes to seasonality in Q1?

Speaker #5: And was there a net headwind to the business from some of the supply chain dynamics and the term deals that you saw in the quarter?

Speaker #5: And then just any caller you can share in terms of how to think about the seasonality for 2Q subscription net new ARR? Thanks.

Speaker #6: Sure. Once again, this is Gary again. I'll hit that. Year over year comparisons, positive or negative, can be tough. There can be individual specific circumstances.

Gary Merrill: Sure. Once again, this is Gary again. I'll hit that. Year-over-year comparisons, positive or negative can be tough because there can be individual specific circumstance. I think the market around hardware availability today is significantly different than it was a year ago, right? Doing strict apples for apples comparison can be off. If you look at the term software business, because you're specifically asking about that, the better metric is probably the sequential, where it was the term software, if you look, it's flat quarter-on-quarter. It tells you that we're navigating any individual specific items related to hardware in that business. If I think about framing the guidance, because I'm sticking to my simplified framework of annual guidance on subscription ARR. We're anchored. We're confident in the guidance we gave at the beginning of the year.

Speaker #6: I think the market around hardware availability today is significantly different than it was a year ago, right? So doing strict apples for apples comparison can be all if you kind of look at the term software business, because you're specifically asking about that, the better metric is probably the sequential, where it was the term software, if you look at flat quarter on quarter.

Speaker #6: So, it tells you that we're navigating any individual, specific items related to hardware in that business. If I think about framing the guidance, I'm sticking to my simplified framework of annual guidance on subscription ARR.

Speaker #6: So we're anchored. We're confident in the guidance we gave at the beginning of the year. It was roughly 190 million dollars of net new subscription ARR.

Gary Merrill: It was roughly $190 million of net new subscription ARR. Nothing has changed. I never expected to make any revisions to that. I think I even said that last quarter. We likely would revisit that at the H1, as it's an annual metric. Where we landed at Q1 puts us right on pace where we want to be. If you want to think big picture framing, I would expect a modest step up in fiscal Q2, sequential improvement in Q2. The remainder, which will be weighted towards the H2. Okay? The other contributing factor that can impact subscription net new ARR, which would be conversions. Anything that's coming out of our perpetual business that moved into subscription net new ARR. The trends in Q1 was lighter than historical trends.

Speaker #6: Nothing has changed. I never expected to make any revisions to that. I think I even said that last quarter. We likely would revisit that in the first half, as it's an annual metric.

Speaker #6: But where we landed in Q1 puts us right on pace where we want to be. If you want to think big picture framing, I would expect a modest step up in fiscal Q2.

Speaker #6: So sequential improvement in Q2. And then the remainder which will be weighted towards the second half, okay? The other contributing factor that can impact subscription net new ARR, which would be convergence, anything that's coming out of our perpetual business that moves into subscription net new ARR, the trends in Q1 was lighter than historical trends.

Speaker #6: On average, we usually saw a contribution mid to high single digits in the millions of contribution from convergence. Q1 was less than historical average.

Gary Merrill: On average, we usually saw a contribution mid to high single digits in the millions of contribution from conversions. Q1 was less than historical average. What it tells you is that in Q1, there was a couple headwinds related to FX and less than historical trends on conversions, which gives us the confidence that the underlying organic piece of the business is strong. Because the parts of the business that are operating very healthily and strong are the pieces that are the long-term growth drivers of the company, particularly our SaaS business. That will frame how I see the big picture and bring it back to the quarterly and the moving parts.

Speaker #6: So what it tells you is that in Q1, there was a couple headwinds related to FX and less than historical trends on convergence, which then gives us the confidence that the underlying organic piece of the business is strong because the parts of the business that are operating very healthily and strong are the pieces that are the long-term growth drivers of the company.

Speaker #6: Particularly our SaaS business. So that will frame kind of how I see the big picture and bring it back to the quarterly and the moving parts.

Eric Heath: Very helpful. Thank you, Gary.

Speaker #5: Yeah, very, very helpful. Thank you, Gary.

Speaker #1: Our next question comes from the line of thought, Valerie Stevens. Please go ahead.

Operator: Our next question comes from the line of Todd Weller with Stephens. Please go ahead.

Speaker #7: Good morning. Can you guys hear me?

Todd Weller: Good morning. Can you guys hear me?

Gary Merrill: Yes.

Speaker #6: Yes.

Sanjay Mirchandani: Who is it?

Speaker #7: So who is it?

Gary Merrill: I think it's Todd. I think Todd's back on.

Speaker #6: I think it's Todd. I think Todd's back on. Good morning, Todd. We can hear you.

Sanjay Mirchandani: Oh, Todd. Okay.

Gary Merrill: Good morning, Todd. We can hear you.

Speaker #7: Good morning. Can you guys hear me? Yes, yes, yes.

James Fish: Good morning. Can you guys hear me?

Todd Weller: Good morning. Can you guys hear me?

Gary Merrill: Yes.

Sanjay Mirchandani: Yes.

Todd Weller: Yeah, sorry about that. Appreciate the question. Just would love to get an update on the adoption of Commvault Cloud Unity. What are you seeing there in terms of customer uptake, and when do you think that will kind of start to contribute to the cross-sell kind of expansion opportunities? Hey, Todd, it's Gary. I'll hit that. Think of Unity not as an individual product, but think about it as a customer experience, right? The ability for our customers to experience the platform and the benefit of managing their workloads, giving them the visibility of their workloads, regardless if those workloads are on-premise in the cloud, bring it all together, and action their protection strategy from a single source of truth, the console. Okay? That's the value to the customer. The value to Commvault is the ability for us to drive cross-sell momentum.

Speaker #4: Yeah, sorry about that.

Speaker #7: I appreciate the question. Just would love to get an update on the adoption of COMMVAULT Cloud Unity. What are you seeing there in terms of customer uptake and when do you think that will kind of start to contribute to the cross-sell kind of expansion opportunities?

Speaker #6: Hey Todd, it's Gary. I'll hit that. So, think of Unity not as an individual product, but think about it as a customer experience, right?

Gary Merrill: Hey, Todd, it's Gary. I'll hit that. Think of Unity not as an individual product, but think about it as a customer experience, right? The ability for our customers to experience the platform and the benefit of managing their workloads, giving them the visibility of their workloads, regardless if those workloads are on-premise in the cloud, bring it all together, and action their protection strategy from a single source of truth, the console. Okay? That's the value to the customer. The value to Commvault is the ability for us to drive cross-sell momentum.

Speaker #6: The ability for our customers to experience the platform and the benefits of managing their workloads—giving them the visibility of their workloads, regardless if those workloads are on-premise or in the cloud—brings it all together and allows them to action their protection strategy from a single source of truth, the console. Okay?

Speaker #6: That's the value to the customer. The value to Commvault is the ability for us to drive cross-sell momentum, because if the customer has the visibility of where they're protected and where they're not, we have the opportunity to help them to make sure that they're protecting their workloads no matter where they are, okay?

Gary Merrill: If the customer has the visibility of where they're protected and where they're not, we have the opportunity to help them to make sure that they're protecting their workloads no matter where they are. Okay. Benefits for us then becomes what happens with multi-product adoption and cross-sell. A little color I can give you on trends there. If we look specifically at our SaaS business and look at the Commvault managed customers, we're up to just shy of 50% of our customers on that platform are using more than one product. We're 49% of those customers, which is a huge improvement year over year. When I double-click into that, where we're actually seeing the most growth, right, the highest level of growth, is the customers in the cohort that are 3 to 5 products.

Speaker #6: So benefits for us then become what happens with multi-product adoption and cross-sell. So, a little color I can give you on trends there: if we look specifically at our SaaS business and look at the Commvault managed customers, we're up to just shy of 50% of our customers on that platform using more than one product.

Speaker #6: We're at 49% of those customers, which is a huge improvement year over year. When I double-click into that, where we're actually seeing the most growth, right, the highest level of growth is the customers in the cohort that are three to five products.

Speaker #6: So while our headline metric anchors around greater than two products, what gives us confidence in the ability to drive that cross-sell motion, especially when we get to the second half, is the strength we see in that three to five product cohort.

Gary Merrill: While our headline metric anchors around greater than two products, what gives us confidence in the ability to drive that cross-sell motion, especially when we get to the H2, is the strength we see in that 3 to 5 product cohort.

Speaker #7: Great. Thank you.

Todd Weller: Great. Thank you.

Speaker #1: Our next question comes from the line of Michael Romanelli with Mizuho. Please go ahead.

Operator: Our next question comes from the line of Michael Romanelli with Mizuho. Please go ahead.

Michael Romanelli: Great. Hey, guys. Thanks for taking the question. I just want to follow up on the identity theme here for a second. It's obviously become a critical dependency for virtually every enterprise app and workflow. As support for Okta comes online, is the larger opportunity the direct monetization of identity resilience or the ability to establish Commvault as a more strategic platform within identity, security, and cyber recovery initiatives? Then I have a follow-up.

Speaker #5: Great. Hey guys, thanks for taking the question. So I just want to follow up on the identity theme here for a second. So it's obviously become critical dependency for virtually every enterprise app and workflow.

Speaker #5: So as support for Okta comes online, is the larger opportunity the direct monetization of identity resilience or the ability to establish COMMVAULT as a more strategic platform within identity security and cyber recovery initiatives, and then I have a follow-up.

Speaker #7: Hey Michael, it's Sanjay. Great question. So, identity—as I said in my remarks—identity compromise, credential compromise, is invariably the first entry point for the bad actors.

Sanjay Mirchandani: Hey, Michael, it's Sanjay. Great question. Identity, as I said in my prepared remarks, that identity compromise, credential compromise, is invariably the first entry point for the bad actors. Now, it only gets more complicated when that is multiplied in the tens of thousands, for example, but with non-human identities. Being able to really understand which non-human identity, i.e., agent, did what, where, and what implications, ripple effects it has, becomes a starting point in many cases for the provenance of the recovery and the rollback that has to happen. Then whether it's an application that needs to be rebuilt, whether it's a cloud-native application or data that needs to be brought back in a trusted manner, it's the whole thing. It's the daisy chain of it all working together.

Speaker #7: Now, it only gets more complicated when that is multiplied in the tens of thousands, for example, but with non-human identities. Then being able to really understand which non-human identity—i.e., agent—did what, where, and what implications or ripple effects it has becomes a starting point in many cases for the provenance of the recovery.

Speaker #7: And the rollback that has to happen. And then whether it's an application that needs to be rebuilt, whether it's cloud-native application or data that needs to be brought back in a trusted manner, it's the whole thing.

Speaker #7: It's the daisy chain of it all working together. So we've been saying that now for I'm saying almost two years, that identity when we two years ago at our shift event, when we brought our identity resilience capabilities out, that this becomes paramount.

Sanjay Mirchandani: We've been saying that now for, I'm saying almost two years, that identity, two years ago at our SHIFT event when we brought our identity resilience capabilities out, that this becomes paramount. To follow up with the earlier anecdote I provided on the CISO conversation recently, I did ask the question as to where does identity protection live? I got 100% sort of hand raise in the room that the CISO organizations were all on point for making sure that identity resilience was part of their charter. You can see how quickly this has become such an important part of both the defense but also the recovery elements of the resilience chain.

Speaker #7: To follow up with the earlier anecdote I provided on the CISO conversation recently, I did ask the question as to where does identity protection live?

Speaker #7: And I got 100% sort of hand raised in the room that the CISO organizations were all on point for making sure that identity resilience was part of their charter.

Speaker #7: So you can see how quickly this has become such an important part of both the defense, but also the recovery elements of the resilience chain.

Speaker #5: Got it. Super clear. Thanks, Sanjay. And then, as my follow-up, you recently hired a new Chief Partner Officer with significant cybersecurity channel experience.

Michael Romanelli: Got it. Super clear. Thanks, Sanjay. As my follow-up, you recently hired a new Chief Partner Officer with a significant cybersecurity channel experience. As Commvault continues its evolution from the more traditional backup and recovery vendor towards a broader cyber resilience platform, where do you see the greatest opportunities to leverage partners to accelerate adoption and expand your reach within the larger enterprise cohort? Thanks.

Speaker #5: So, as Commvault continues its evolution from a more traditional backup and recovery vendor toward a broader cyber resilience platform, where do you see the greatest opportunities to leverage partners to accelerate adoption and expand your reach within the larger enterprise cohort?

Speaker #5: Thanks.

Sanjay Mirchandani: We've always been clear that the partner ecosystem is pivotal as large enterprises start transforming their resilience thinking. Brian's background plays very well into how our customers and our partners, actually, let's lead with the partner conversation, are thinking about it because security and data security, identity resilience, and recovery can't have a lot of life between them. To be truly resilient, those three elements need to come together. That's what we said when we brought out Unity, the platform, that these have to work closely together. Partners don't want to work with 50 different tools to deliver that solution. Coming back to what I said about the provenance of the attack or what was compromised to what needs to be recovered, we're the platform that delivers that, be it on-premise, be it on cloud, be it any kind of hybrid.

Speaker #7: We've always been we've always been clear that the partner ecosystem is pivotal as large enterprises start transforming their resilience thinking. Brian's background plays very well into how our customers and our partners actually, let's lead with the partner conversation, are thinking about it.

Speaker #7: Because it's security and data security, identity, resilience, and recovery can't have a lot of life between them. To be truly resilient, those three elements need to come together. That's what we said when we brought out Unity.

Speaker #7: The platform, that these have to work closely together. And partners don't want to work with 50 different tools to deliver that solution. So coming back to what I said about the provenance of the attack or where what was compromised to what was what needs to be recovered, where the platform that delivers that, be it on-premise, be it on cloud, be it any kind of hybrid.

Speaker #7: So his background is obviously, we have a very keen on having him on the team because of the background, because he could talk security, he could talk to the partners that are on the front end of the framework, if you would.

Sanjay Mirchandani: His background is, obviously, we were very keen on having him on the team because of the background, because he could talk security, he could talk to the partners that are on the front end of the framework, if you would.

Speaker #1: Our next question comes from the line of Renick Katari with Baird. Please go ahead.

Operator: Our next question comes from the line of Shrenik Kothari with Baird. Please go ahead.

Speaker #8: Yeah. Thanks for taking my question. So Sanjay, you called CLOMEO one of the stronger growers in the SaaS portfolio. Big picture, within CLOMEO, I think Gary briefly described cloud-native customers starting to drive that acceleration.

Shrenik Kothari: Thanks for taking my question. Sanjay, you called Clumio one of the stronger growers in the SaaS portfolio. Big picture within Clumio, I think Gary briefly described cloud-native customers starting to drive that acceleration. That customer example you gave around Snowflake, S3, Google Cloud sounds much broader than a conventional sort of deployment in your case. Just curious, was that a big driver for Clumio, that deal this quarter? Just how do you view that and similar deals as early examples of a more repeatable platform motion now, or it still remains a more bespoke engagement? I had a quick follow-up.

Speaker #8: And that customer example you gave around Snowflake, S3, Go Cloud, sounds much broader than a conventional sort of deployment in your case. So just curious, was that a big driver for CLOMEO, that deal this quarter?

Speaker #8: And just how do you view that and similar deals—as early examples of a more repeatable platform motion now, or was it, or does it still remain, a more bespoke engagement? And I had a quick follow-up.

Speaker #7: Actually, this is Sanjay. It's not bespoke. This is a very clear persona that CLOMEO is attractive to. The cloud natives, companies that are 100% cloud that have deep commitment to cloud platforms, cloud databases, cloud pass layers, and our ability to be able to roll those back at a cost point and a time frame that is incredibly valuable to customers.

Sanjay Mirchandani: Actually, this is Sanjay. It's not bespoke. This is a very clear persona that Clumio is attractive to. The cloud natives, companies that are 100% cloud that have deep commitment to cloud platforms, cloud databases, cloud PaaS layers, our ability to be able to roll those back at a cost point and a time frame that is incredibly valuable to customers. We've got customers growing this footprint incredibly well because it goes deep and it goes fast. The onboarding, provisioning of this technology, the ability for us to be able to recover when needed is second to none. When you combine that with our rewind capability for cloud-native applications, there's nothing like it in the business.

Speaker #7: And we've got customers growing this footprint incredibly well because it goes deep and it goes fast. So the onboarding and provisioning of this technology, and the ability for us to be able to recover when needed, is second to none.

Speaker #7: And when you combine that with our Rewind capability for cloud-native applications, there's nothing like it in the business.

Speaker #8: Very helpful, Sanjay. And Gary. To follow up on the net dollar retention—you mentioned multi-product adoption reaching 49%. That's very strong progress, and it's rising faster with the newer offerings.

Shrenik Kothari: Very helpful, Sanjay. Gary, just to follow on the net dollar retention. I know you mentioned multi-product adoption reaching 49%, very strong progress, it's rising faster newer offerings. Just in light of that, you mentioned fast NRR has been around 120% and subscription is pretty stable at overall 114% or past several quarters. Just curious, what might be offsetting the stronger attach motion today in terms of that metric? Since you mentioned the confidence in the three to five product attach rates in the H2, just curious, how do you see the potential for that NDR to continue to trend out from this point onwards?

Speaker #8: Just in light of that, you mentioned SaaS and there are has been around 120% and subscriptions, pretty stable at overall 114% over the past several quarters.

Speaker #8: Just curious, what might be offsetting the stronger attached motion today in terms of that metric? And since you mentioned the confidence in the three to five product attached rates in the second half, just curious, how do you see the potential for that NDR to continue to trend up from this point onwards?

Speaker #2: Thanks, Renick. It's Gary. So, staying true to the framework that I outlined last quarter and moving towards subscription as the combined metric—whether it's across ARR, net dollar retention, and revenue—is kind of the key P&L and related metric.

Gary Merrill: Thanks, Ranjit. It's Gary. Staying true to the framework that I outlined last quarter, moving towards subscription as the combined metric, whether it's across ARR, net dollar retention, revenue, is kind of the key P&L and related metrics. That 114 is the confidence mark that we have. Where I see the goalpost, for lack of a better way to describe it, as I look out, is probably ±200 basis points on either side. I see opportunity, obviously, if we continue to drive the multi-product expansion as the year goes, tied to the offerings that we've been talking about. That kind of gives you the framework. Now, I've not factored upside or incremental improvements of NRR into the guidance. My guidance assumes the trends that we see will continue at the levels that we're currently experiencing.

Gary Merrill: Thanks, Shrenik. It's Gary. Staying true to the framework that I outlined last quarter, moving towards subscription as the combined metric, whether it's across ARR, net dollar retention, revenue, is kind of the key P&L and related metrics. That 114 is the confidence mark that we have. Where I see the goalpost, for lack of a better way to describe it, as I look out, is probably ±200 basis points on either side. I see opportunity, obviously, if we continue to drive the multi-product expansion as the year goes, tied to the offerings that we've been talking about. That kind of gives you the framework. Now, I've not factored upside or incremental improvements of NRR into the guidance. My guidance assumes the trends that we see will continue at the levels that we're currently experiencing.

Speaker #2: That 114 is the confidence mark that we have. Where I kind of see the goalpost for lack of a better way to describe it as I look out is probably plus or minus 200 basis points on either side.

Speaker #2: So, I see opportunity, obviously, if we continue to drive the multi-product expansion as the year goes, tied to the offerings that we've been talking about. That kind of gives you the framework.

Speaker #2: Now, I've not factored upside, right? I've not factored upside or incremental improvements of NRR into the guidance. My guidance assumes the trend that we see will continue at the levels that we're currently experiencing.

Speaker #2: Now, the dollars go up because the base, especially as we get to the second half, is much bigger, right? As we compound our motion over many years, okay?

Gary Merrill: The dollars go up because the base, especially as we get to the H2, is much bigger. As we compound our motion over many years, okay, and a seasonality business that's geared to the H2, it gives us that confidence of the early trends we're seeing, not only in the identity and data security that Sanjay outlined in pretty good detail, but the other offerings like we just talked about, Clumio. In my prepared remarks, there's some of our emerging offerings that whether it's Google Workspace or whether it's DevOps workloads. We're starting to see the trends pick up across the portfolio. Some of those individual products, ASPs individually are lower, but what it does is drive the ARPA related to the customer as we get that three to five cohort, and that's the metric that we look at.

Speaker #2: And the seasonality business that's geared to the second half, it gives us that confidence of the trends we're seeing early trends we're seeing not only in the identity and data security that Sanjay outlined in pretty good detail, but the other offerings like we just talked about CLOMEO, in my prepared remarks, there's some of our emerging offerings that whether it's Google Workspace or whether it's DevOps workloads.

Speaker #2: So we're starting to see the trends pick up across the portfolio. Some of those individual products—ASPs, individually—are lower, but what it does is drive the ARPA related to the customer as we get that three-to-five cohort.

Speaker #2: And that's the metric that we look at. So it's the combination of the vision that we laid out probably last November of Unity, and the opportunity we have in this platform to drive that cross-sell, and some of the early signs of strength that we're seeing.

Gary Merrill: It's the combination of the vision that we've laid out probably last November of Unity and the opportunity that we have in this platform to drive that cross-sell in some of the early signs of strength that we're seeing.

Speaker #8: Great. Very helpful. Thanks a lot, Sanjay. Gary.

Shrenik Kothari: Great. Very helpful. Thanks a lot, Sanjay, Gary.

Operator: In the interest of time, we have room for two final questions for today. The next one comes from the line of Jason Ader with William Blair. Please go ahead.

Speaker #1: And then to ourselves, Tom, we have room for two final questions for today. The next one comes from the line of Jason Ader with Williams.

Operator: In the interest of time, we have room for two final questions for today. The next one comes from the line of Jason Ader with William Blair. Please go ahead.

Speaker #1: Please go ahead.

Speaker #9: Yeah, thanks. Good morning, guys. So, Sanjay, it seems like there's a rising tide in your space, but we're hearing good things about all of your major competitors from our checks.

Jason Ader: Yeah, thanks. Good morning, guys. Sanjay, it seems like a rising tide in your space, but we're hearing good things about all of your major competitors from our checks. Maybe just talk what really differentiates Commvault at this point and how your win rates are trending.

Speaker #9: So maybe just talk what really differentiates COMVOLT at this point and how your win rates are trending.

Speaker #7: Hey, Jason. I think I touched on it earlier. It's the platform. It's the ability for us to take complex hybrid workloads and simplify resilience around it.

Sanjay Mirchandani: Hey, Jason. I think I touched on it earlier. It's the platform. It's the ability for us to take complex hybrid workloads, and simplify resilience around it. That's the core of what we do. Gary talked about it as well, which is it doesn't matter where the workload originates or ends. We make sure that it's protected, and we give full resilience to the enterprise that's working with us on one single platform. Your data can live in the cloud. Your data can start in the cloud. We have the ability to give you a single policy engine that protects you across the board. Now, alongside that, we've got capabilities like Cleanroom, like Threat Scan, identity resilience, all of which make recovery that much more bulletproof. The ability for us to be able to understand what happened, whether it be AI-enabled or not.

Speaker #7: That's the core of what we do. And Gary talked about it as well, which is: it doesn't matter where the workload originates or ends.

Speaker #7: We make sure that it's protected and we give full resilience to the enterprise that's working with us on one single platform. Your data can live in the cloud.

Speaker #7: Your data can start in the cloud. We have the ability to give you a single policy engine that protects you across the board. Now, alongside that, we've got capabilities like Clean Room, like Threat Scan, Identity Resilience, all of which make recovery that much more bulletproof.

Speaker #7: The ability for us to be able to understand what happened, whether it be AI-enabled or not, our ability to take large data estates and applications and bring them back to life.

Sanjay Mirchandani: Our ability to take large data estates and applications and bring them back to life. We win based on our technical capability to take the most complex customer environments and give them resilience. Okay. We have north of 1,600 approved patents, granted patents to the company, we continue to innovate like never before.

Speaker #7: So we win based on our technical capability to take the most complex customer environments and give them resilience. Okay? We have north of 1,600 granted patents to the company, and we continue to innovate like never before.

Speaker #9: Great. And then just any comment on win rates?

Jason Ader: Great. Just any comment on win rates?

Gary Merrill: Hey, Jason, it's Gary. I'll hit that. We don't specifically obviously disclose our win rates. If I think about, and one area that I look at measuring is as we come into the quarter, what's our pipeline look like and our ability to close against the available pipeline. That kind of shows that if our value prop is resonating, okay, if we're able to demonstrate the ability to close that pipeline during the quarter. If I look at some of those metrics, we see improvement. We see improvement year-over-year. That shows to the effectiveness of our ability to compete when we're driving those metrics higher.

Speaker #2: Hey Jason, it's Gary. I'll hit that. We don't specifically, obviously, disclose our win rates, but if I think about it, one area that I look at measuring is, as we come into the quarter, what our pipeline looks like and our ability to close against the available pipeline.

Speaker #2: And that kind of shows that if our value prop is resonating, okay? If we're able to demonstrate the ability to close that pipeline during the quarter.

Speaker #2: And if I look at some of those metrics, we see improvement. We see improvement year over year. So that shows to the effectiveness of our ability to compete when we're driving those metrics higher.

Speaker #9: Excellent. Thank you.

Jason Ader: Excellent. Thank you.

Speaker #1: Our final question for today comes from the line of Junaid Siddiqui with Truist Securities. Please go ahead.

Operator: Our final question for today comes from the line of Junaid Siddiqui with Truist Securities. Please go ahead.

Junaid Siddiqui: Great. Good morning, and thanks for squeezing me in. With enterprise data growth running materially faster than backup spending and that most AI workloads remain unprotected today, how should we think about the timing of monetizing that gap between data growth and protected data growth? When can those AI workloads become a meaningful contributor to ARR growth? Thank you.

Speaker #3: Great. Good morning, and thanks for squeezing me in. Would enterprise data growth be running materially faster than backup spending? And that most AI workloads remain unprotected today?

Speaker #3: How should we think about the timing of monetizing that gap between data growth and protected data growth? And when can those AI workloads become a meaningful contributor to ARR growth?

Speaker #3: Thank you.

Gary Merrill: Yeah. Hey, Junaid. It's Gary. I'll jump in. Okay. We think about the movement of accelerated data growth that everybody's somewhat aligned around, and Commvault being a second-level beneficiary to that trend. What I mean by that is as the news that we all hear is AI infrastructure and AI purchasing as it relates to infrastructure exploding, okay? That data has to be put into models, trained, tested, put into production and enterprise applications. That will take time. As it relates specifically, I think, to your question about how do we factor maybe some of that into our guidance on subscription net new ARR, accelerating revenue compared to levels that are today, related to AI data sets for AI initiatives into production enterprise applications is not factored into our guidance.

Speaker #2: Yeah. Hey, Junaid, it's Gary. I'll jump in, okay? So we think about the movement of accelerated data growth that everybody's somewhat aligned around. As COMVOLT being like a second-level beneficiary, to that trend.

Speaker #2: So what I mean by that is as the news that we all hear is AI infrastructure and AI purchasing as it relates to infrastructure exploding, okay?

Speaker #2: That data has to be put into models, trained, tested, put into production and enterprise applications. That will take time. So as it relates specifically, I think, to your question about how do we factor maybe some of that into our guidance on subscription net new ARR, accelerating revenue from compared to levels that are today, accelerate related to AI datasets for AI initiatives into production enterprise applications is not factored into our guidance, okay?

Sanjay Mirchandani: Correct.

Speaker #2: So we view that as more of a secular trend. And the secular trend aspects the important piece because it's not a once-and-done big bang, we're going to get it.

Gary Merrill: We view that as more of a secular trend. The secular trend aspects the importance piece because it's not a once and done big bang, we're going to get to see a tailwind this year. We view that as we look out in that 1 to 3-year framework that gives us sustained opportunity to drive subscription ARR growth more on a secular basis, and less dependent on achieving our financial objectives for the current fiscal year.

Speaker #2: We're going to get to see a tailwind this year. We view that, as we kind of look out in that one- to three-year framework, that gives us sustained opportunity to drive subscription ARR growth, more on a secular basis and less dependent on achieving our financial objectives for the current fiscal year.

Speaker #7: Correct. And examples being earlier this month, we released the port Deep Support for the newer AI tooling like Snowflake. Databricks, Pinecone, so BigQuery, all of this enables customers to start building and using data in applications in AI-enabled applications.

Sanjay Mirchandani: Correct. Examples being earlier this month, we released deep support for the newer AI tooling like Snowflake, Databricks, Pinecone, BigQuery. All of this enables customers to start building and using data in AI-enabled applications. As always, we've got the support for the tooling that they're using. Over time, this gets more and more sophisticated, and our ability to protect that gets more quantifiable.

Speaker #7: And we've got, as always, the support for the tooling that they're using, and over time this gets more and more sophisticated, and our ability to protect that gets more quantifiable.

Junaid Siddiqui: Great, thank you. Just to follow up on that multiproduct adoption that was asked earlier. What are you seeing from customers that's separating those customers that remain single product from those that are expanding into, let's say, two, three, or more products? Is it just the size? Any particular industries? Just kind of curious what you're seeing out there. Thank you.

Speaker #3: Great, thank you. And just to follow up on that multi-product adoption that was asked earlier, what are you seeing from customers that is separating those customers that remain single product from those that are expanding into, let's say, two, three, or more products?

Speaker #3: Is it just the size? Any particular industries? Just kind of curious what you're seeing out there. Thank you.

Gary Merrill: It's Gary. As it relates to how it impacts our model, it's the customers that are prioritizing recovery. What I mean by that is, our customers that believe recovery is like the new wave of security. When you get to a platform approach and leverage our Unity vision, ultimately what we're doing for our customers is allowing them to bring their businesses back to life effectively and quickly. If you have to do that using multiple products over multiple vendors over multiple versions, you will not be able to recover your business. The common theme is prioritization of recovery as part of their security posture. That's what kind of drives our cross-sell motion.

Speaker #2: Yeah, it's Gary. As it relates to how it impacts our model, it's the customers that are prioritizing recovery. And what I mean by that is our customers believe recovery is like the new wave of security. When you get to a platform approach and leverage our Unity vision, ultimately what we're doing for our customers is allowing them to bring their businesses back to life effectively and quickly.

Speaker #2: And if you have to do that using multiple products over multiple vendors over multiple versions, you will not be able to recover your business.

Speaker #2: So the common theme is prioritization of recovery as part of their security posture. That's what kind of drives our cross-domination.

Speaker #7: Yeah. And if I had to oversimplify it: if you're using one product, it's a purpose—it's a point solution that you're invoking. If you're using multiple products, it's resilience that you're invoking.

Sanjay Mirchandani: If I had to oversimplify it, if you're using one product, it's a point solution that you're invoking. If you're using multiple products, it's resilience that you're invoking.

Junaid Siddiqui: Great. Thank you so much.

Speaker #3: Great. Thank you so much.

Speaker #2: Thank you.

Gary Merrill: Thank you.

Speaker #1: Thank you. And that is all the time we have for the Q&A session. I will now turn the call back over to Michael for closing remarks.

Operator: Thank you. That is all the time we have for the Q&A session. I will now turn the call back over to Michael for closing remarks.

Speaker #2: Thanks, everyone, for joining today. We reached our hard stop, unfortunately, for those remaining in the queue. We'll prioritize you during the callbacks coming up.

Michael J. Melnyk: Thanks everyone for joining today. We've reached our hard stop unfortunately. For those remaining in the queue, we'll prioritize you during the callbacks coming up. We want to thank everyone for your continued support.

Speaker #2: And we want to thank everyone for your continued support. Thank you.

Sanjay Mirchandani: Thank you.

Gary Merrill: Thank you.

Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Have a good day.

Q1 2027 Commvault Systems Inc Earnings Call

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