Business context and reporting period
Commvault Systems, Inc. provides data-protection and information-management software, appliances, support and professional services, including its Metallic SaaS offering. This unaudited Form 10-Q covers the third quarter and first nine months of fiscal 2021, ended December 31, 2020; comparisons are with the corresponding fiscal 2020 periods. Amounts below are in U.S. dollars.
Financial performance
| Metric | Three months ended Dec. 31, 2020 | Year-over-year change | Nine months ended Dec. 31, 2020 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $188.0 million | +7% | $532.1 million | +5% |
| Software and products revenue | $88.6 million | +16% | $237.5 million | +14% |
| Services revenue | $99.4 million | Down $0.4 million | $294.6 million | −1% |
| Gross margin | $159.6 million; 84.9% | Up from 82.7% | $452.4 million; 85.0% | Up from 82.1% |
| Operating income (loss) | $2.7 million | Prior-year loss of $0.5 million | Loss of $32.6 million | Prior-year loss of $15.3 million |
| Net income (loss) | $1.7 million; diluted EPS $0.03 | Prior-year loss of $0.7 million; EPS −$0.01 | Loss of $37.2 million; EPS −$0.80 | Prior-year loss of $14.6 million; EPS −$0.32 |
| Cash from operating activities | Not separately provided for the quarter | $59.2 million | Up from $56.0 million |
Quarterly software and products growth reflected higher larger-deal revenue; services were nearly flat, with a $0.5 million increase in Metallic revenue partly offsetting lower customer-support revenue. For the nine-month period, software and products gains were led by larger deals, while services declined modestly.
Financial position and liquidity
At December 31, 2020, cash and cash equivalents were $377.6 million and short-term investments were $10.8 million. Working capital was $247.2 million, up from $185.1 million at March 31, 2020. Current liabilities were $359.4 million, including $247.5 million of deferred revenue. No debt balance appears on the presented balance sheet. Management said existing cash and operating cash flows should cover anticipated needs for at least the next 12 months. Cash held outside the U.S. was approximately $176.5 million and could be subject to local restrictions or withholding taxes if repatriated.
Nine-month investing cash flow was positive $26.8 million, primarily reflecting $32.8 million of investment maturities, partly offset by $6.0 million of capital expenditures. Financing cash flow was negative $26.1 million, including $33.1 million of share repurchases. Cash, cash equivalents and restricted cash increased by $81.5 million; the increase included a $21.6 million favorable exchange-rate effect.
Material changes and unusual items
- A $40.7 million noncash impairment charge on Hedvig-acquired intangible assets was recorded in the second quarter. Management said standalone sales of the acquired technology did not meet forecasts; the assets’ remaining value was deemed de minimis. This charge was a major contributor to the nine-month operating and net losses.
- Nine-month research and development expense rose $20.5 million, primarily reflecting engineering-group expansion and a longer period of Hedvig-related costs. The company also recognized $4.2 million of compensation expense for payments to certain Hedvig shareholders tied to continued employment.
- Third-quarter restructuring expense increased to $11.6 million from $2.0 million a year earlier, mainly due to severance. Nine-month restructuring charges were $19.7 million. Management cautioned that expected benefits are not assured and cited potential costs, employee-morale effects and loss of key employees.
- Stock-based compensation was $61.6 million for the nine months, versus $48.6 million a year earlier. The company repurchased $33.1 million of stock in the quarter; $166.9 million remained under the existing authorization at December 31.
Outlook, risks and contingencies
The filing provides no specific revenue or earnings guidance. Management anticipated continued investment in research and development and stated that liquidity should meet expected needs for at least 12 months. The Board approved an intended repurchase plan of $200 million from February 1, 2021 through the end of fiscal 2022, plus approximately 75% of fiscal 2022 free cash flow for additional repurchases; execution remains subject to management and Board judgment.
Key disclosed risks include reliance on indirect distribution and Arrow, which represented 36% of nine-month revenue and approximately 33% of receivables at December 31; foreign-currency exposure, with 48% of nine-month sales outside the U.S.; and dependence on large software deals. The company reported foreign-currency transaction losses of $1.7 million for the nine months. It said no pending legal action was expected to have a material adverse effect, and reported no off-balance-sheet financing arrangements. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether software and products growth and larger-deal momentum continue, and whether services and customer-support revenue stabilize.
- The effect of the Hedvig impairment on future performance and whether acquisition-related commercial assumptions improve.
- Restructuring outcomes, including severance costs, operating efficiencies and any effect on retention or growth targets.
- Cash generation, receivables and deferred-revenue trends, particularly given Arrow’s distribution and receivables concentration.
- The timing and scale of planned repurchases and their impact on cash, share count and investment capacity.
- Foreign-exchange impacts and the availability or cost of repatriating foreign-held cash.