• Total Revenue: Increased 21% to $263 million.
• Subscription Revenue: Grew 39% to $158 million.
• Total ARR: Improved 21% in constant currency to $911 million.
• SaaS ARR: Jumped 75% in constant currency.
• Non-GAAP EBIT Margins: Recorded at 20.8%.
• Gross Margins: 82%, reflecting a shift towards SaaS.
• Operating Expenses: $160 million, representing 61% of total revenue.
• Free Cash Flow: $30 million, impacted by foreign exchange headwinds.
• Stock Repurchase: $32 million in Q3, representing 107% of free cash flow.
• Q4 Revenue Guidance: Expected to be in the range of $260 million to $264 million.
• Fiscal Year '25 Total Revenue Guidance: Expected to be in the range of $980 million to $985 million.
• Fiscal Year '25 Free Cash Flow Guidance: Expected to be $170 million to $200 million.

• Warning! GuruFocus has detected 3 Warning Sign with CVLT.

Release Date: January 28, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• CommVault Systems Inc (NASDAQ:CVLT) reported a record-breaking quarter with total revenue increasing by 21% to $263 million.
• Subscription revenue grew significantly by 39% to $158 million, driven by strong SaaS momentum.
• The company achieved a 75% increase in SaaS ARR in constant currency, showcasing robust growth in its cloud offerings.
• CommVault Systems Inc (NASDAQ:CVLT) introduced new capabilities such as Cloud Rewind and advanced cloud backup for Google Workspace, enhancing its product portfolio.
• The company saw strong contributions from its partner ecosystem, including alliances with Hitachi, HBE, Kyndryl, and Dell, which helped drive sales and expand its market reach.

Negative Points

• Despite strong revenue growth, the company faces foreign exchange headwinds that impacted free cash flow.
• Operating expenses remained high at 61% of total revenue, consistent with prior quarters, due to investments in growth initiatives and acquisitions.
• The Clumio acquisition, while strategic, is expected to be dilutive to margins for two to three quarters.
• There is a competitive landscape in the cyber resilience market, which may pose challenges in maintaining market share.
• The company is experiencing seasonality in its ARR growth, with Q3 having a higher renewal population, which may not be sustainable in the long term.

Q & A Highlights

Q: Can you elaborate on the momentum in your SaaS customer base and the contribution from Clumio? A: Jen DiRico, CFO, explained that they added about 1,000 new subscription customers, with approximately 200 from Clumio and the rest organic. The SaaS net revenue retention rate remains strong at 127%, with significant opportunities for cross-selling new products like Active Directory and Cloud Rewind.

Q: What are your fiscal '26 targets, and how are you tracking against them? A: Jen DiRico stated that the previous guidance was $1 billion ARR and $330 million SaaS ARR by the end of FY '26. They are currently tracking ahead of these targets, with a recent quarter adding $38 million in net new ARR on a constant currency basis.

Q: How much of the business acceleration is due to external factors versus internal execution? A: Sanjay Mirchandani, CEO, attributed the growth to their platform's ability to enhance customer resilience against cyber attacks and the alignment of their go-to-market resources. The combination of solving customer problems and executing efficiently has driven growth.

Q: Can you discuss the seasonality of net new ARR and any factors affecting it? A: Jen DiRico noted that the second half of the year is typically stronger. Q3 had a higher renewal population, and Q4 guidance reflects strong pipeline and field execution. The growth is mostly organic, with minimal impact from Clumio.

Q: When do you expect to see more operating leverage, and what are the factors affecting operating margins? A: Jen DiRico mentioned that FY '25 is a year of investment to accelerate revenue growth, impacting margins. Factors include a higher SaaS revenue mix, Clumio's dilutive effect, and increased commissions due to overperformance. Despite this, they are achieving a rule of 42, indicating strong overall performance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.