Commvault Systems, Inc. — Q1 FY2022 Form 10-Q
Period: Three months ended June 30, 2021; comparisons are with the three months ended June 30, 2020 unless noted. Financial statement amounts are in U.S. dollars; figures below are in millions except per-share data. Commvault provides data protection and information-management software, products and services, including its Metallic SaaS offering.
Financial results
| Metric | Q1 FY2022 | Prior period | Change |
|---|---|---|---|
| Revenue | $183.4 | $173.0 | +6% |
| Software and products revenue | $82.2 | $76.6 | +7% |
| Services revenue | $101.3 | $96.4 | +5% |
| Gross profit / margin | $158.1 / 86.2% | $148.4 / 85.8% | Margin +0.4 percentage points |
| Operating income / margin | $15.5 / 8.4% | $6.7 / 3.9% | Income more than doubled |
| Net income | $13.9 | $2.3 | Up $11.6 |
| Diluted EPS | $0.29 | $0.05 | Up $0.24 |
| Operating cash flow | $37.2 | $15.3 | Up $21.9 |
| Capital expenditures | $1.4 | $1.6 | Down $0.2 |
Revenue growth included a $4.5 million increase in other services revenue, primarily from Metallic, and a $0.3 million increase in customer support. Software and products revenue rose $5.6 million. Larger deals (over $0.1 million) were 69% of software and products revenue, versus 73% a year earlier; deal count increased 34%, while average deal size fell 24%, partly because the prior-year period included a large transaction.
Sales and marketing expense declined 7% to $76.4 million. Research and development rose 16% to $36.1 million, and general and administrative expense rose 23% to $26.4 million. The increases reflected compensation and engineering investment; G&A also included $2.4 million more in legal costs related to intellectual-property matters. Cost of services increased with Metallic infrastructure and employee costs. Lower software/product costs reflected reduced hardware sales and royalties during the transition toward a software-only model.
Liquidity, capital and balance sheet
Cash and cash equivalents were $359.1 million at June 30, 2021, down from $397.2 million at March 31, 2021. Current assets were $541.9 million and current liabilities $347.3 million; working capital was $194.6 million, down from $234.4 million at fiscal year-end, primarily because of share repurchases. The filing reports no interest-rate risk and does not identify outstanding borrowings or debt balances.
Operating cash flow was $37.2 million. Investing cash flow was a $1.4 million use, principally capital expenditures. Financing cash flow was a $74.6 million use, reflecting $90.0 million of repurchases partly offset by $15.4 million in proceeds from stock-based compensation plans. The quarter’s net cash decrease was $38.1 million. Approximately $186 million of cash was held by foreign legal entities; repatriation could be subject to local restrictions or tax consequences. Management said existing cash and operating cash flow should cover anticipated needs for at least the next 12 months.
Deferred revenue totaled $373.7 million at quarter-end. Revenue recognized from the March 31 deferred-revenue balance was $90.8 million. An additional $37.6 million of revenue was associated with remaining performance obligations beyond deferred revenue; timing of much of the services component depends on customer needs and schedules.
Outlook, commentary and risks
- No specific revenue, earnings or cash-flow guidance was provided. Management expects continued R&D spending and said it plans to repurchase $200 million of stock from February 1, 2021 through fiscal 2022 year-end, plus approximately 75% of fiscal 2022 free cash flow. Repurchases from February 1 through June 30 totaled $152.2 million.
- The company continued its transition to a software-only appliance model, which management expects to reduce hardware-related revenue and costs. Metallic growth contributed to services revenue, while its infrastructure costs also increased.
- Arrow generated 37% of revenue in both periods and represented approximately 32% of accounts receivable at June 30. Dependence on this distributor and indirect channels is a material concentration risk.
- Sales outside the United States were 45% of revenue. Foreign exchange movements affected reported results; management estimated that prior-year exchange rates would have reduced current-period software and products revenue by $3.1 million and services revenue by $4.5 million, alongside lower costs.
- A change in commission-plan terms and the related estimate reduced first-quarter fiscal 2022 sales and marketing expense by approximately $1.1 million compared with the prior estimate.
- Rubrik filed a patent-infringement lawsuit in February 2021. Commvault disputes the claims, but said the outcome and any financial impact cannot currently be determined. The company also noted risks that its restructuring program may incur unexpected costs or fail to achieve intended results.
- Income tax expense was $1.7 million, primarily related to current foreign taxes. The company maintained a valuation allowance against its gross deferred tax assets. Disclosure controls were assessed as effective; management also cautioned that controls provide reasonable, not absolute, assurance.
Important facts for investors to verify
- Whether growth in software and products, Metallic and remaining performance obligations is sustained, given lower average large-deal size and customer-dependent service timing.
- The effects of the software-only transition on revenue mix, hardware costs, royalties and margins.
- Cash generation and liquidity after the planned repurchases, including the stated use of approximately 75% of fiscal 2022 free cash flow for additional buybacks.
- Arrow’s continuing role and the implications of distributor and receivables concentration.
- Developments in the Rubrik litigation, related legal spending and any material change in the company’s assessment of exposure.