Commvault Systems, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended March 31, 2021. The filing is an annual report; despite the request metadata, it covers the full fiscal year, not just a quarter. Commvault sells data protection and information-management software, appliances, support, professional services and Metallic SaaS.
Financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $723.5 million | $670.9 million |
| Software and products revenue | $326.8 million | $275.3 million |
| Services revenue | $396.6 million | $395.6 million |
| Gross profit / gross margin | $614.1 million / 84.9% | $553.8 million / 82.5% |
| Operating income (loss) | $(22.3) million | $(17.5) million |
| Net income (loss) | $(31.0) million; $(0.66) per diluted share | $(5.6) million; $(0.12) per diluted share |
| Cash from operations | $124.0 million | $88.5 million |
| Capital expenditures | $8.2 million | $3.2 million |
| Cash, cash equivalents and restricted cash | $397.2 million | $296.1 million |
- Revenue grew 8%; software and products increased 19%, while services rose about 0.3%. Software and products represented 45% of revenue, versus 41% in FY2020.
- Gross margin improved to 84.9% from 82.5%, reflecting lower appliance-related costs and cost reductions. Operating loss widened despite higher gross profit, with a $40.7 million impairment charge on Hedvig-acquired intangible assets among the major items.
- Research and development expense rose 21% to $133.4 million; restructuring expense was $23.5 million. Stock-based compensation totaled $84.8 million.
- Working capital was $234.4 million, up from $185.1 million. Current assets were $607.6 million and current liabilities $373.2 million. The balance sheet reports no borrowings or debt balance; operating lease liabilities totaled $22.9 million.
- Cash from operations less capital expenditures was approximately $115.8 million, compared with $85.3 million in FY2020. Operating cash flow benefited from noncash charges and increases in deferred revenue and accrued liabilities, partly offset by higher receivables and deferred commissions.
Material changes and unusual items
- Software and products growth was driven primarily by larger transactions: revenue from deals above $0.1 million increased 26%; these deals made up 69% of software and products revenue, versus 65% in FY2020. Americas software and products revenue rose 32%; EMEA rose 7%; APJ was flat.
- Software licenses sold under subscription arrangements accounted for approximately 59% of software license revenue, up from 41% in FY2020. Management expects subscription revenue’s share of total revenue to continue increasing. Subscription license revenue is generally recognized when delivered, while Metallic SaaS revenue is recognized over the service period.
- In the second half of FY2021, Commvault began shifting HyperScale X toward a software-only model using third-party assembled appliances; management expects associated hardware revenue and costs to decline.
- The $40.7 million impairment reduced Hedvig-related intangible assets to zero after standalone sales fell short of forecasts. Goodwill of $112.4 million was not impaired.
- The company repurchased $95.3 million of shares during FY2021. A capital allocation plan provides for $200 million of repurchases from February 1, 2021 through FY2022-end, plus approximately 75% of FY2022 free cash flow for additional repurchases.
Outlook, risks and contingencies
- No numerical revenue or earnings guidance is provided. Management expects subscription arrangements to increase as a proportion of revenue and anticipates continued investment in research and development. It states existing cash and operating cash flow should meet anticipated needs for at least 12 months.
- COVID-19 disrupted sales activity and customer spending, though remote work did not significantly impair customer support. The duration and financial impact remained uncertain.
- Sales-channel concentration is notable: Arrow-related sales were 36% of FY2021 revenue, and more than 90% of software and products revenue was generated through indirect channels. Arrow represented 33% of year-end receivables.
- Other key risks include intense competition, renewal and subscription non-renewal risk, long enterprise sales cycles, cybersecurity and system disruptions, foreign-currency exposure, and dependence on third-party platform interoperability. Management estimates a 10% currency-rate change could affect annual operating profit by approximately $11.1 million.
- Legal matters include Commvault patent suits against Cohesity and Rubrik, and a February 2021 patent-infringement suit filed by Rubrik against Commvault. The company says it intends to contest Rubrik’s claims; outcomes and potential financial effects could not be determined.
- Non-cancellable purchase commitments were $30.0 million. The company disclosed no off-balance-sheet financing arrangements. It has never paid cash dividends and does not anticipate doing so in the foreseeable future.
- The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of March 31, 2021.
Important facts for investors to verify
- Whether software and products growth, particularly large-deal growth, continues and converts into sustainable operating profitability.
- Whether the subscription shift and Metallic SaaS growth offset the near-flat services revenue and support-renewal exposure.
- How the Hedvig impairment, restructuring spending and elevated R&D investment affect future margins and returns on invested capital.
- Cash generation, receivables and collections, deferred-revenue trends, and the scale and pace of planned share repurchases.
- Developments in the Rubrik and Cohesity litigation, and any resulting costs, restrictions or business impact.
- Exposure to Arrow and other indirect channels, foreign exchange, cybersecurity incidents, and COVID-related customer spending effects.