— Annualized recurring revenue (ARR) up 9% year over year —
— Second quarter software and products revenue up 5% year over year —
— Recurring revenue up 6% year over year —
| GAAP Results: | Second quarter |
|---|---|
| Revenues | $171.1 million |
| Loss from Operations (EBIT) | $(42.0) million |
| Operating Margin | (24.5)% |
| Diluted Loss Per Share | $(0.89) |
| Non-GAAP Results: | |
|---|---|
| Income from Operations (EBIT) | $28.9 million |
| EBIT Margin | 16.9% |
| Diluted Earnings Per Share | $0.45 |
Tinton Falls, N.J. – October 27, 2020 – Commvault [NASDAQ: CVLT] today announced its financial results for the second quarter ended September 30, 2020.
“We are pleased by this quarter’s solid financial performance and are on track to deliver continued growth and operating margin expansion,” said Sanjay Mirchandani, President and CEO, Commvault. “The Commvault portfolio has never been stronger. New product announcements including Commvault HyperScale X, Commvault Disaster Recovery, and Metallic Cloud Storage Service represent a series of first-mover advantages, addressing critical needs like cloud transformation and ransomware.”
Total revenues for the second quarter of fiscal 2021 were $171.1 million, an increase of 2% year over year and a decrease of 1% sequentially. Total recurring revenue was $129.1 million, an increase of 6% year over year.
Annualized recurring revenue (ARR), which is the annualized value of all active Commvault recurring revenue streams at the end of the reporting period, was $483.5 million as of September 30, 2020, up 9% from September 30, 2019.
Software and products revenue was $72.3 million, an increase of 5% year over year and a decrease of 6% sequentially. The year over year increase in software and products revenue was driven by an 8% increase in larger deals (deals greater than $0.1 million in software and products revenue).
Services revenue in the quarter was $98.8 million, flat year over year and an increase of 2% sequentially.
On a GAAP basis, loss from operations was $42.0 million for the second quarter compared to a loss of $8.2 million in the prior year. The current quarter loss was driven by $40.7 million of non-cash impairment charges of intangible assets recognized in the acquisition of Hedvig, Inc. The impairments are primarily due to a moderated view of the acquisition assumptions. The Hedvig technology has now been fully integrated into Hyperscale X software and appliances. The integration of this technology will lessen reliance on third party vendors, begin driving meaningful gross margin expansion on our Hyperscale technology, and improve the customer experience. Non-GAAP EBIT, which excludes the non-cash impairment charges, was $28.9 million in the quarter compared to $24.8 million in the prior year.
Operating cash flow totaled $27.0 million for the second quarter of fiscal 2021 compared to $24.0 million in the prior year quarter. Total cash and short-term investments were $394.0 million as of September 30, 2020 compared to $339.7 million as of March 31, 2020.
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 selected 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 or superior to, 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 FICA and related payroll tax expense incurred by Commvault when employees exercise in the money stock options or vest in restricted stock awards as well as restructuring costs. In fiscal 2020, Commvault also excluded costs related to a non-routine shareholder matter. Commvault has also excluded the noncash amortization and impairment of intangible assets and certain costs related to key employees of Hedvig from its non-GAAP results. 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.
Amortization and impairment charges of intangible assets are noncash items. Commvault believes the exclusion of these expenses provide for a useful comparison of operating results to prior periods and to 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.
Commvault’s management generally compensates for the limitations described above related to the use of non-GAAP financial measures by providing investors with a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure. Further, Commvault 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 incorporate 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, October 27, 2020, at 8:30 a.m. Eastern Time (5:30 a.m. Pacific Time) to discuss its financial results. To access this call, dial 844-742-4247 (domestic) or 661-378-9470 (international). The live webcast can be accessed under the “Events” section of Commvault’s website. An archived webcast of this conference call will also be available following the call.
