Commvault Systems, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended September 30, 2021. Financial results below are unaudited; amounts are in U.S. dollars. The company provides data protection and information management software, products, and services, including its Metallic SaaS offering.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Revenue | $177.8m | $171.1m | $361.3m | $344.1m |
| Gross margin | $151.3m; 85.1% | $144.3m; 84.3% | $309.4m; 85.6% | $292.8m; 85.1% |
| Operating income (loss) | $2.3m | $(42.0)m | $17.8m | $(35.3)m |
| Net income (loss) | $1.7m | $(41.2)m | $15.6m | $(38.9)m |
| Diluted EPS | $0.04 | $(0.89) | $0.33 | $(0.84) |
| Cash from operations | — | $63.3m | $42.2m |
Q2 revenue grew 4% year over year; six-month revenue grew 5%. Software and products revenue increased 4% in Q2 and 6% for the six-month period. Services revenue grew 4% in Q2 and 4% for the six months, led by higher other-services revenue, primarily Metallic, partly offset by lower customer-support revenue. Excluding hardware, Q2 software revenue increased 9% year over year.
Operating results improved substantially from the prior-year periods, which included a $40.7m impairment of intangible assets related to Hedvig and higher restructuring costs. The current six-month period also benefited from lower depreciation and amortization. Operating margin was approximately 1.3% in Q2 and 4.9% for the six months, versus losses in the prior-year periods.
Balance sheet, cash flow, and capital allocation
At September 30, 2021, cash and cash equivalents were $295.8m, down from $397.2m at March 31, 2021. Current assets were $482.7m and current liabilities $339.8m; working capital was $142.9m, down $91.5m since fiscal year-end, primarily because of share repurchases. The filing reports no borrowings or other financial debt on the balance sheet; liabilities principally include deferred revenue, accrued liabilities, and operating leases.
Six-month operating cash flow was $63.3m. Investing cash outflow was $4.7m, including $2.0m of capital expenditures and $2.7m of investment purchases. Financing cash outflow was $156.8m, mainly reflecting $180.1m of share repurchases, partly offset by $23.3m of proceeds from stock-based compensation plans. Cash declined $101.4m over the period.
The company repurchased $180.1m of stock during the six months and $90.0m in Q2. Since February 1, 2021, repurchases totaled $242.2m. The board’s stated policy calls for $200m of repurchases through the end of FY2022, plus approximately 75% of FY2022 free cash flow for additional repurchases. Management said existing cash and operating cash flow should meet anticipated needs for at least the next 12 months.
Material changes, outlook, and risks
- Q2 software and products revenue growth was strongest in the Americas; APJ declined 20% year over year. For the six months, APJ software and products revenue declined 2% while the Americas and EMEA each grew 7%.
- Services costs increased, largely due to Metallic infrastructure costs; six-month services cost also reflected higher compensation than the prior-year period. Research and development expense rose 19% for the six months as the company expanded engineering investment. Management expects continued R&D spending.
- A $2.5m settlement gain, recorded against related legal expense in general and administrative expense, resolved certain legal matters. The company reported no pending legal action it believes would reasonably be expected to materially harm its business or results.
- Changes to sales commission plans reduced sales and marketing expense by an estimated $0.95m in Q2 and $2.05m for the six months, compared with the prior amortization estimate.
- Deferred revenue was $372.4m in total. An additional $37.8m of revenue related to remaining performance obligations was not included in deferred revenue; approximately $4.3m was software and products revenue, with most expected in FY2022. Timing of much of the services amount depends on customer needs and schedules.
- Key risks include reliance on indirect distribution and Arrow, which generated 35% of six-month revenue and represented approximately 25% of receivables at September 30; foreign currency exposure, with 47% of six-month sales outside the U.S.; and execution risks in the ongoing restructuring program. The company also noted that repatriating foreign cash may be subject to local restrictions or taxes.
- No quantified revenue or earnings guidance is provided in the supplied filing text. Management cautions that interim results are not necessarily indicative of full-year results. Disclosure controls were concluded effective as of September 30, 2021.
Most important facts for investors to verify
- Whether Metallic growth can continue and outpace its infrastructure costs, and how customer-support revenue trends develop.
- Whether software and products growth is broad-based, particularly given the Q2 decline in APJ and the dependence on large transactions and channel partners.
- The pace and sustainability of share repurchases relative to operating cash generation, cash balances, and the stated FY2022 capital allocation policy.
- The impact of higher R&D and stock-based compensation costs on future operating margins, and progress and costs associated with restructuring.
- Cash availability and any constraints or tax costs associated with funds held outside the United States.