Commvault Systems, Inc. — Form 10-Q Summary
Reporting period: Third quarter and nine months ended December 31, 2021 (fiscal 2022). Unaudited results; dollar amounts below are in millions unless stated otherwise.
Business context and financial performance
Commvault provides data protection and information management software, products and services, including its Metallic software-as-a-service offering. It operates as one segment and is transitioning toward a software-only appliance model.
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $202.4 | $188.0 | $563.6 | $532.1 |
| Gross margin | $172.4; 85.2% | $159.6; 84.9% | $481.8; 85.5% | $452.4; 85.0% |
| Operating income (loss) | $12.4 | $2.7 | $30.1 | $(32.6) |
| Net income (loss) | $10.0 | $1.7 | $25.6 | $(37.2) |
| Diluted EPS | $0.21 | $0.03 | $0.54 | $(0.80) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $90.1 | $59.2 |
Quarterly revenue rose 8% year over year: software and products increased 11% to $98.6 million, while services increased 4% to $103.8 million. For the nine months, revenue grew 6%; software and products rose 8% and services rose 4%. The growth in other services was driven primarily by Metallic, partly offset by lower customer-support revenue.
Q3 operating margin was approximately 6.1%, versus 1.4% a year earlier. Nine-month operating margin was approximately 5.3%, versus negative 6.1%; the prior-year period included $40.7 million of intangible-asset impairment and higher restructuring charges. Quarterly operating expenses increased, including higher research and development and general and administrative costs.
Financial position, liquidity and capital allocation
- Cash and cash equivalents were $233.7 million at December 31, 2021, down from $397.2 million at March 31, 2021. Current assets were $467.0 million and current liabilities $365.8 million; working capital was $101.3 million, down from $234.4 million.
- Cash from operations was $90.1 million for the nine months. Investing used $6.4 million and financing used $242.3 million, including $265.4 million of share repurchases. Cash declined $163.5 million in the period.
- No borrowings were outstanding on the new five-year, $100 million secured revolving credit facility at quarter-end; the company reported compliance with its covenants. The facility carries financial covenants and restrictions on certain activities.
- Repurchases since February 1, 2021 totaled $327.5 million through December 31, including $85.3 million in the quarter. The company’s stated capital allocation policy calls for $200 million of repurchases through fiscal year-end 2022, plus approximately 75% of fiscal 2022 free cash flow for additional repurchases.
- Management said existing cash and operating cash flow should cover anticipated needs for at least 12 months. Approximately $171.6 million of cash was held by foreign legal entities, where repatriation may face local restrictions or tax consequences.
Changes, outlook, risks and unusual items
- Software and products growth was supported by larger deals: these represented 76% of quarterly software and products revenue, versus 68% a year earlier. The Americas grew strongly, while APJ revenue declined; management attributed the APJ comparison partly to unusually large deals in the prior-year quarter.
- Metallic growth increased services revenue but also raised infrastructure costs. Services cost was 25% of services revenue in the quarter, versus 22% a year earlier.
- Management expects continued investment in research and development. The filing provides no specific revenue or earnings guidance and cautions that interim results are not necessarily indicative of full-year results.
- A change in commission-plan terms and the related amortization estimate reduced sales and marketing expense by approximately $0.8 million in the quarter and $2.9 million for the nine months compared with the former estimate. A $2.5 million legal settlement gain was recorded against general and administrative legal expense; the settlement resolved certain legal matters.
- In January 2022, the company signed an agreement to acquire an overseas firm to enhance ransomware protection for approximately $17 million, funded from foreign cash. Closing was expected in fiscal Q4 2022.
- Key exposures include dependence on indirect sales channels and Arrow, which represented 36% of nine-month revenue and approximately 34% of receivables at December 31; large-deal variability; foreign currency movements (49% of nine-month revenue came from outside the U.S.); and execution and cost risks associated with restructuring and investment. No pending legal action was identified as reasonably expected to have a material adverse effect.
Investor verification points
- Track whether software-and-product growth, larger-deal volume and APJ performance remain consistent with the reported quarter, and monitor reliance on Arrow and indirect channels.
- Assess Metallic revenue growth against rising service infrastructure costs and customer-support revenue trends.
- Review cash generation and liquidity after substantial buybacks, the planned use of free cash flow for repurchases, and the acquisition’s closing, funding and integration.
- Check the impact of the commission amortization estimate, stock-based compensation and legal expenses on reported operating profitability.
- Monitor foreign-currency effects, covenant compliance and any changes in the company’s liquidity outlook.