Commvault CFO: despite deal delays, the best quarter in years for new customer wins
Storage technology stalwart Commvault Tuesday morning reported fiscal Q2 revenue and profit that both missed Wall Street’s expectations, and forecast revenue this quarter lower as well.
The miss was the result of twin effects of some large software deals that are part of digital transformation taking longer to close, and some business being delayed because the global supply chain disruption is delaying shipments of computers on which the company’s software would have been installed by customers.
The report sent Commvault shares down 19% in Tuesday’s regular trading session. The stock continued to dip slightly in late trading.
Despite the “mixed” results, the quarter had several gems, said Commvault’s chief financial officer, Brian Carolan, in a conversation with ZDNet via Zoom following the results.
“We had one of our best quarters in several years for new customer revenue,” said Carolan, with revenue from new customers doubling from the prior-year period, he said.
“It’s the best quarter in several years,” he added. “We’ve been trying to focus more on new customer acqusition.” The comapny did well with its existing customer base during the [COVID-19] pandemic, and “now we’re demonstrating this new muscle, and we’re really pleased with that.”
“I’d much rather have a miss be tied to a temporary hardware delay, or some existing customer business got stalled,” said Carolan. “But the new customer business, that’s really hard to win, these large competitive displacements,” against “well-entrenched competition and new competitors such as Cohesity.
Signing up many new customers was a result, said Carolan, of having “really rebuilt our sales force, bringing in enterprise-grade execution.”
Commvault doesn’t disclose the specific revenue number for new customer revenue, instead only commenting on the rate of growth in a quarter.
Revenue in the three months ended in September rose 4%, year over year, to $177.8 million, yielding a net profit of 48 cents a share.
Analysts had been modeling $184.8 million and 57 cents per share profit.
On the company’s conference call following the report, Carolan told analysts that the company expects revenue for the current quarter of $195 million, below consensus for $199.5 million.
The shortfall was not entirely a surprise. Back in July, Carolan had told analysts during the company’s conference call that Wall Street’s consensus at the time for $184.5 million in revenue “is reasonable,” but he had also added a word of caution that the timing of closing large software sales with enterprise customers could slip because of the pandemic.
Some customers, especially in Europe or Asia-Pacific, are requesting extra executive input to close a software purchase, said Carolan. “Especially in Europe, we had a large European bank that, we got to the final throws of procurement, and they said, Nope, we need to have a security review from end to end, a holistic security review,” said Carolan.
“We’re seeing that more and more, chief security officers be part of the sales process, whereas 18 months ago that didn’t exist.” Tradtiionally, Commvault sales people would have been negotiating with IT backup adminstrators, he said. “Now, you’re getting on these calls and they are digging deep in terms of the security posture.” Carolan said Commvault welcomes the extra scrutiny given its products have “more certifications than you can count on one hand.”
Carolan said Commvault is “being transparent” with Wall Street analysts, including “conservatism” in its outlook for the business. “We feel good about Q3, the pipeline is up,” he said of the current quarter. Q3 is traditionally one of the company’s strongest quarters, given that it includes the tradtional “budget flush” by customers. And Q4 is usually helped by having Commvault’s sales executives incentivized to close the books on the fiscal year on a strong note.
Recurring revenue, which includes subscription software, maintenance support services and SaaS revenue, was $141 million, equivalent to 79% of revenue in the quarter, up from 78% in the prior quarter and 75% in the year-earlier quarter. Commvault has said it expects to reach a point of having 80% to 85% of its revenue being recurring come 2023, a view that Carolan reiterated with ZDNet.
Commvault’s annualized recurring revenue (ARR) rose 12%, year over year, to $543 million. The company’s ARR from SaaS-based software sales rose over 40% to $278 million, and made up more than half of total ARR.
Another bright spot was that Metallic, Commvault’s cloud-based backup software product that debuted in October of 2019, is now a “meaningful” contributor to ARR. “We hit some real milestones this past quarter” on Metallic, said Carolan. “We now have over 1,000 customers on Metallic, we gained over 300 new customers just this new quarter.”
“What’s really nice to see is that 60% of those customers were brand net-new to Commvault, and 50% of our Metallic customers run another Commvault solution.” That, he said, means most Metallic customers are choosing multiple products. Those who are dealing with cloud-native tasks, such as Microsoft Office 365 or container-based workloads, will opt for Metallic, whereas the legacy Commvault products will suit other kinds of workloads.
Commvault expects to give more disclosure about Metallic later this fiscal year, said Carolan. “We haven’t called out yet what the Metallic ARR number is, but it’s getting to be very meaningful, and it’s driving like our deferred revenue and our ARR growth; we’re exicted about that to share more.”
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