Commvault Announces Fiscal 2023 Third Quarter Financial Results
|Investor Relations Contact:|
|Michael J. Melnyk, CFA|
Third quarter highlights include:
|GAAP Results:||Third quarter:|
|Income from Operations (EBIT)||$5.0 million|
|Diluted Loss Per Share||($0.01)|
|Non-GAAP Results:||Third quarter:|
|Income from Operations (EBIT)||$38.5 million|
|Diluted Earnings Per Share||$0.62|
Tinton Falls, N.J. – January 31, 2023 – Commvault [NASDAQ: CVLT] today announced its financial results for the third quarter ended December 31, 2022.
“We remain confident that customers will continue to recognize Commvault’s products and services as a critical component to keep their data safe and simplify their journey to the cloud,” said Sanjay Mirchandani, President and CEO. “As we navigate through current macro conditions, we are committed to our philosophy of responsible growth.”
Total revenues for the third quarter of fiscal 2023 were $195.1 million, a decrease of 4% year over year. On a year over year constant currency basis, total revenue growth would have been 1%. Total recurring revenue was $167.1 million, an increase of 2% year over year. On a year over year constant currency basis, total recurring revenue growth would have been 7%. Recurring revenue represented 86% of total revenue.
Annualized recurring revenue (ARR), which is the annualized value of all active Commvault recurring revenue streams at the end of the reporting period, was $640.7 million as of December 31, 2022, up 14% year over year. On a year over year constant currency basis, ARR growth would have been 18%, driven by continued strength in Metallic. Combined Subscription and Metallic ARR now represents approximately 70% of total ARR.
Software and products revenue was $89.6 million, a decrease of 9% year over year due to a weaker than forecasted enterprise market and execution on close rates, with a 14% decrease in larger deals (deals with greater than $0.1 million in software and products revenue). On a year over year constant currency basis, software and products revenue would have declined 5%. Americas software and products revenue declined 20%. Our International software and products revenues increased 6% year over year, which would have been 17% on a constant currency basis.
Larger deal revenue represented 72% of our software and products revenue in the three months ended December 31, 2022. The number of larger deal revenue transactions was 206 for the three months ended December 31, 2022, compared to 225 for the three months ended December 31, 2021. The average dollar amount of larger deal revenue transactions was approximately $312,000, representing a 6% decrease from the prior year.
Services revenue in the quarter was $105.5 million, an increase of 2% year over year. The year over year increase in revenue was driven by Metallic. On a year over year constant currency basis, services revenue would have increased 7%.
On a GAAP basis, income from operations (EBIT) was $5.0 million for the third quarter compared to $12.4 million in the prior year. During the third quarter, we incurred $9.2 million of restructuring charges related to headcount reductions. Non-GAAP EBIT was $38.5 million in the quarter compared to $43.1 million in the prior year. The year over year decline in non-GAAP EBIT was primarily attributable to the decline in software and products revenue.
Operating cash flow increased 13% to $30.2 million for the third quarter of fiscal 2023 compared to $26.8 million of operating cash flow in the prior year quarter. The increase was driven by deferred revenue growth.
During the third quarter of fiscal 2023, Commvault repurchased approximately 507,000 shares of its common stock totaling $31.3 million at an average price of approximately $61.87 per share. Total cash was $273.5 million as of December 31, 2022 compared to $267.5 million as of March 31, 2022.
On January 19, 2023, the Board of Directors approved a plan to sell Commvault’s owned corporate headquarters in Tinton Falls, New Jersey. Subsequently, Commvault entered into an agreement to sell the property for $40.0 million. The agreement includes a due diligence period for the buyer, is contingent on receiving approvals from certain government agencies, and includes other customary closing conditions. The sale will likely close in the first half of fiscal 2024. Upon closing of the transaction, Commvault plans to enter into a lease for a portion of the premises.
A reconciliation of GAAP to non-GAAP results has been provided in Financial Statement Table IV included in this press release. (Download Financial Tables)
An explanation of these measures is also included below under the heading “Use of Non-GAAP Financial Measures.”
Use of Non-GAAP Financial Measures
Commvault has provided in this press release the following non-GAAP financial measures: non-GAAP income from operations, non-GAAP income from operations margin, non-GAAP net income, non-GAAP diluted earnings per share and annualized recurring revenue (ARR). This financial information has not been prepared in accordance with GAAP. Commvault uses these non-GAAP financial measures internally to understand, manage and evaluate its business and make operating decisions. In addition, Commvault believes these non-GAAP operating measures are useful to investors, when used as a supplement to GAAP financial measures, in evaluating Commvault’s ongoing operational performance. Commvault believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends, and in comparing its financial results with other companies in Commvault’s industry, many of which present similar non-GAAP financial measures to the investment community. Commvault has also provided software and products, services and total revenues on a constant currency basis. Commvault analyzes revenue growth on a constant currency basis in order to provide a comparable framework for assessing how the business performed excluding the effect of foreign currency fluctuations.
All of these non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures, which are provided in Table IV included in this press release. (Download Financial Tables)
Non-GAAP income from operations and non-GAAP income from operations margin. These non-GAAP financial measures exclude noncash stock-based compensation charges and additional Federal Insurance Contribution Act (FICA) and related payroll tax expense incurred by Commvault when employees exercise in the money stock options or vest in restricted stock awards, restructuring costs, and the noncash amortization of intangible assets. These expenses are further discussed in Table IV. Commvault believes that these non-GAAP financial measures are useful metrics for management and investors because they compare Commvault’s core operating results over multiple periods. When evaluating the performance of Commvault’s operating results and developing short- and long-term plans, Commvault does not consider such expenses.
Although noncash stock-based compensation and the additional FICA and related payroll tax expenses are necessary to attract and retain employees, Commvault places its primary emphasis on stockholder dilution as compared to the accounting charges related to such equity compensation plans. Commvault believes that providing non-GAAP financial measures that exclude noncash stock-based compensation expense and the additional FICA and related payroll tax expenses incurred on stock option exercises and vesting of restricted stock awards allow investors to make meaningful comparisons between Commvault’s operating results and those of other companies.
There are a number of limitations related to the use of non-GAAP income from operations and non-GAAP income from operations margin. The most significant limitation is that these non-GAAP financial measures exclude certain operating costs, primarily related to noncash stock-based compensation, which is of a recurring nature. Noncash stock-based compensation has been, and will continue to be for the foreseeable future, a significant recurring expense in Commvault’s operating results. In addition, noncash stock-based compensation is an important part of Commvault’s employees’ compensation and can have a significant impact on their performance. Lastly, the components that Commvault excludes in its non-GAAP financial measures may differ from the components that its peer companies exclude when they report their non-GAAP financial measures.
Due to the limitations related to the use of non-GAAP measures, Commvault’s management assists investors by providing a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. Further, Commvault’s management uses non-GAAP financial measures only in addition to, and in conjunction with, results presented in accordance with GAAP.
Non-GAAP net income and non-GAAP diluted earnings per share (EPS). In addition to the adjustments discussed in non-GAAP income from operations, non-GAAP net income and non-GAAP diluted EPS incorporates a non-GAAP effective tax rate of 27%.
Commvault anticipates that in any given period its non-GAAP tax rate may be either higher or lower than the GAAP tax rate as evidenced by historical fluctuations. The GAAP tax rates in recent fiscal years were not meaningful percentages due to the dollar amount of GAAP pre-tax income. For the same reason as the GAAP tax rates, the estimated cash tax rates in recent fiscal years are not meaningful percentages. Commvault defines its cash tax rate as the total amount of cash income taxes payable for the fiscal year divided by consolidated GAAP pre-tax income. Over time, Commvault believes its GAAP and cash tax rates will align.
Commvault considers non-GAAP net income and non-GAAP diluted EPS useful metrics for Commvault management and its investors for the same basic reasons that Commvault uses non-GAAP income from operations and non-GAAP income from operations margin. In addition, the same limitations as well as management actions to compensate for such limitations described above also apply to Commvault’s use of non-GAAP net income and non-GAAP EPS.
Conference Call Information
Commvault will host a conference call today, January 31, 2023 at 8:30 a.m. Eastern Time (5:30 a.m. Pacific Time) to discuss quarterly results. The live webcast and call dial-in numbers can be accessed by registering under the “Events” section of Commvault’s website. An archived webcast of this conference call will also be available following the call.
Commvault is a global leader in data management. Our Intelligent Data Services help your organization do amazing things with your data by transforming how you protect, store, and use it. We provide a simple and unified Data Management Platform that spans all your data – regardless of where it lives (on-premises, hybrid, or multi-cloud) or how it’s structured (legacy applications, databases, VMs, or containers). Commvault solutions are available through any combination of software subscriptions, integrated appliances, partner-managed, or Software as a Service (SaaS) via our Metallic portfolio. Visit www.Commvault.com or follow us @Commvault.
Safe Harbor Statement
This press release may contain forward-looking statements, including statements regarding financial projections, which are subject to risks and uncertainties, such as competitive factors, difficulties and delays inherent in the development, manufacturing, marketing and sale of software products and related services, general economic conditions, outcome of litigation and others. For a discussion of these and other risks and uncertainties affecting Commvault’s business, see “Item IA. Risk Factors” in our annual report on Form 10-K and “Item 1A. Risk Factors” in our most recent quarterly report on Form 10-Q. Statements regarding Commvault’s beliefs, plans, expectations or intentions regarding the future are forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from anticipated results. Commvault does not undertake to update its forward-looking statements.