Commvault: Fiscal 2Q17 Financial Results

Sales increasing and losses diminishing
This is a Press Release edited by on 2016.10.26

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(in $ million) 2Q16 2Q17 6 mo. 16 6 mo. 17
Revenue 140.7 159.3 279.9 311.7
Growth   13%   11%
Net income (loss) (9.2) (0.6) (10.5) (2.6)

Commvault Systems, Inc. announced its financial results for the second quarter ended September 30, 2016.

N. Robert Hammer, chairman, president and CEO stated: "We achieved strong second quarter financial performance which was highlighted by 22% year-over-year software revenue growth driven by a significant increase in the number of enterprise revenue transactions across all of our geographic regions. In addition, focused efforts by our marketing and field organizations during the quarter contributed to continued growth of our sales funnels. We anticipate that our recent business momentum combined with innovations announced earlier this month at Commvault GO 2016, our inaugural global customer conference, should provide a stronger foundation for continued growth. These innovations include enhanced stand-alone solutions for DR, dev test, application management and software-defined data services for big data workloads and digital repository environments. We continue to believe we are in an excellent position to capitalize on the opportunities in front of us, including both increasing our market share in our core data management business as well as expanding our cloud-based offering footprint."

Total revenues for the second quarter of fiscal 2017 were $159.3 million, an increase of 13% year-over-year, and 5% sequentially. Software revenue was $70.5 million, an increase of 22% year-over-year, and 10% sequentially. Services revenue in the quarter was $88.9 million, an increase of 7% year-over-year, and flat on a sequential basis.

On a GAAP basis, loss from operations (EBIT) was $0.8 million for the second quarter compared to a loss of $4.6 million in the prior year. Non-GAAP EBIT increased 68% to $18.2 million in the quarter compared to $10.9 million in the prior year.

For the second quarter of fiscal 2017, Commvault reported a GAAP net loss of $0.6 million, or a $0.01 loss per diluted share. Non-GAAP net income for the quarter was $11.5 million, or $0.25 per diluted share, versus $0.15 per diluted share in the second quarter of fiscal 2016.

Operating cash flow totaled $20.2 million for the second quarter of fiscal 2017 compared to $9.6 million in the prior year quarter. Total cash and short-term investments were $439.6 million as of September 30, 2016 compared to $387.2 million as of March 31, 2016. During the quarter, there were no borrowings against the revolving credit facility or repurchases of Commvault's shares. As of October 25, 2016, there is $93.1 million available under the share repurchase program that currently expires on March 31, 2017.

Recent Business Highlights:
    •    From October 3-6, 2016, the firm hosted its inaugural customer conference, Commvault GO.  With more than 1,200 attendees, the event was a sellout, and included both private and public sector customers and prospects, along with, partners, industry analysts and experts, with all topics dedicated to helping customers better protect and activate their data. Attendees were presented with learning sessions and hands-on labs to address best practices for modern data centers, the move to the cloud, backup, application recovery and more. Response to the event has been positive as Commvault looks to begin planning for next year.
    •    On October 4, 2016, the company introduced innovations in the Commvault Data Platform extending its leadership in the backup, recovery and archive space. Latest innovations build on its open API architecture to provide new levels of openness offering customers flexibility of choice in infrastructure, platform, compute and storage providers; extended automated platform orchestration for more efficient management of IT; and new user interfaces simplifying how business users leverage the platform. The vendor also announced new software-defined data services, designed to enable customers to leverage new solutions tailored to big data and digital workloads.
    •    On October 4, 2016, the firm also announced that customers running SAP HANA can gain greater business value from their data and improve IT efficiencies as the 11th version of the company's solutions portfolio (v11) - Commvault Software and the Commvault Data Platform - had achieved SAP-certified integration with the SAP HANA platform on IBM Power Systems.
    •    On July 11, 2016, the company launched new Reference Architectures with alliance partner Cisco to give customers and partners an easy-to-buy, pre-optimized and validated solution for simplified data protection and recovery using Commvault's software deployed on the Cisco UCS infrastructure. It announced support into Cisco's HyperFlex hyperconvergence system to help organizations protect data workloads and applications across virtualized and cloud infrastructures.

Our Comments

(in $ million) 2Q16 2Q17 Y/Y growth % of total revenue
in 2Q17
Software revenue
57.6 70.5 22% 44%
Service revenue
83.2 88.9  7% 56%
Total 140.7 159.3 13% 100%

The first two fiscal quarters of FY17 were good in term of revenue growth: Y/Y 10% in the first one, 13% in the second one (and Q/Q 5%). Net losses are continuing but decreasing from $2.0 million to $0.6 million yearly and the company could be back to profit during the next three-month period. More than that, sales for current FY17 could be up compared to FY16 when revenue decreased for the first time since many years. Conclusion: the company is slowly rebounding but it took a lot of efforts for about two years to come back.

The company achieved 22% year-over-year license revenue growth during the quarter driven by an increase in the number of enterprise revenue transactions across all of geographic regions.

Quarterly revenue from enterprise deals - over $100,000 in software revenue - represented 57% of software revenue resulting in a 44% Y/Y increase. The number of enterprise deals was up 45% Y/Y. Average enterprise deal size was flat on a yearly basis and increased 11% sequentially to $268,000 during the quarter.

Americas, EMEA and APAC represented 63%, 23% and 14% of software revenue respectively for the most recent three-month period. On a Y/Y growth basis, software revenue increased 21%, 12% and 53% respectively.

Commvault added 450 new customers in the quarter, now totaling historically 23,500.

For the quarter, revenue transacted through Arrow and Avnet was 37% and 11% of total sales respectively.

Here is how chairman, president and CEO Bob Hammer reviews his game plan: "The key components of our strategic game plan are as follows. Our near-term plans are to accelerate growth in our core, large enterprise data management business, core federated cloud data management, backup, archive, compliance, mobile, file sync and share; move into other cloud-related standalone data management use cases for both the enterprise and mid-market with best-of-breed solutions for disaster recovery and applications management, including dev test; establish a strong position in big data markets with a unique software-defined storage solution that provides comprehensive software-defined data services for big data and digital content; and, lastly, establish a stronger position in the healthcare vertical. We expect to have these key near-term solutions in the market by our 4FQ17; that's the March quarter. These new solutions should begin to impact revenues in 1FQ18 and should help accelerate our growth through fiscal FY18."

The company didn't give figures for next quarter.

CFO Brian Carolan just stated: "We expect quarterly sequential growth in the second half.
For the full year, we believe FY17 services revenue will increase in the low to mid single-digit percentage range due to our first half overachievement. However, we are forecasting services revenue to be roughly flat sequentially in 3FQ017 and then to decrease sequentially in 4FQ017 primarily from the compounding impact of the maintenance pricing realignment process." 

Fiscal period Revenue Y/Y growth Net income (loss)
FY14 586.3 18% 64.1
1Q15 152.6 14% 12.7
2Q15 151.1 7% 6.5
3Q15 153.0 -0% 3.1
4Q15 150.7 -4% 3.4
FY15 607.5 4% 25.7
1Q16 139.1 -9% (1.3)
2Q16 140.7 -7% (9.2)
3Q16 155.7 2% 4.9
4Q16 159.6 6% 58
FY16 595.1 -2% 0.1
1Q17 152.4 10% (2.0)
2Q17 159.3 13% (0.6)

To read the earnings call transcript