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Commvault: Fiscal 2Q18 Financial Results

Adversely impacted by lower than expected close rates on large enterprise deals

(in $ million) 2Q17 2Q18 6 mo. 17 6 mo. 18
Revenue 159.4 168.1 311.2 334.1
Growth   5%   7%
Net income (loss) (0,05) (1,0) (2.7) (1.3)

Commvault Systems, Inc. announced its financial results for the second quarter ended September 30, 2017.

N. Robert Hammer, chairman, president and CEO stated: “Our fiscal second quarter was adversely impacted by lower than expected close rates on large enterprise deals, as these deals are both complex and have timing risk. However, we made excellent progress against many of our strategic initiatives, including the successful launch of Commvault HyperScale, a modern reference architecture solution for scale-out storage and data protection, where we won a number of marquee customers during the second quarter. We also made excellent progress enhancing our distribution leverage both in the enterprise with Cisco, who will resell our HyperScale solution, as well as with our key channel partners who are now positioned to market our hardware appliance version of Commvault HyperScale that will start shipping this quarter. In addition, we continue to strengthen our strategic partnership with Microsoft. We believe these initiatives have the potential to positively contribute to our financial results in our fiscal third quarter and accelerate into our fiscal fourth quarter.”  

He added: “I am also pleased that both leading industry analyst firms have positioned Commvault as a leader in their respective reports: Gartner in their Magic Quadrant for Data Center Backup and Recovery Solutions and Forrester in their Forrester Wave for Data Resiliency Solutions. We believe this is strong, independent validation of our innovation and unparalleled customer service. Despite the financial results for the quarter, we continue to believe we are well positioned to take advantage of the opportunities in front of us during the second half of fiscal 2018 and into fiscal 2019.”

Total revenues for the second quarter of fiscal 2018 were $168.1 million, an increase of 5% year-over-year, and 1% sequentially. Software revenue was $72.0 million, an increase of 2% year-over-year, and a decrease of 4% sequentially. Services revenue in the quarter was $96.1 million, an increase of 8% year-over-year and 5% sequentially.

On a GAAP basis, loss from operations (EBIT) was $4.7 million for the second quarter compared to a loss of $0.1 million in the prior year. Non-GAAP EBIT was $15.6 million in the quarter compared to $18.9 million in the prior year.

For the second quarter of fiscal 2018, the company reported a GAAP net loss of $1.0 million, or $0.02 loss per diluted share. Non-GAAP net income for the quarter was $10.0 million, or $0.21 per diluted share.

Operating cash flow totaled $9.7 million for the second quarter of fiscal 2018 compared to $20.2 million in the prior year quarter. Total cash and short-term investments were $494.6 million as of September 30, 2017 compared to $450.2 million as of March 31, 2017.

During the second quarter of fiscal 2018, Commvault repurchased 192,000 shares of its common stock totaling $11.3 million. As of October 24, 2017, there is approximately $114 million available under the share repurchase program that currently expires on March 31, 2018. There have been no borrowings against the line of credit during fiscal 2018.

Recent Business Highlights:
• On October 17, 2017, announced HyperScale, a solution for data protection on scale-out infrastructures. It is available both as a purpose-built appliance for workloads up to 100TB, and as HyperScale Software, allowing customers to implement a scale-out approach based on their own choice of hardware configurations. HyperScale provides a unified, modern approach to data protection and storage, with cloud-like agility, resiliency and availability to on-premises data and applications.
• On October 2, 2017, announced it would highlight its support for Oracle Cloud Infrastructure at Oracle OpenWorld, which was held Oct. 1-5, 2017, in San Francisco, CA. Through this new milestone in its longstanding partnership with Oracle, support for Oracle Cloud Infrastructure helps customers to protect and recover data workloads in and to the cloud. Using Commvault software with Oracle Cloud Infrastructure, customers can facilitate the extension of the enterprise to the cloud while still managing data as if it never left the physical data center. Customers can also use Oracle Cloud Infrastructure as a DR target to mitigate risk and potential loss of business and reputational damage.
• On September 27, 2017, announced additional support for Microsoft Azure, advancing the digital transformation for customers in the cloud as the needs for data management, including protection, archive and DR become increasingly impactful on their business. The announcement was made at Microsoft Ignite in Orlando Florida, where the company highlighted new support for Archive Blob Storage, Azure Data Box and further data management integration for Azure Stack.
• On September 25, 2017, Commvault announced it has been positioned by Forrester as a Leader in the Forrester Wave: Data Resiliency Solutions, Q3 2017. It received the highest score in the Current Offering category. According to the report, “Forrester evaluated the strengths and weaknesses of top data resiliency vendors. After examining past research, client inquiries, user needs assessments, and vendor and expert interviews, we developed a comprehensive set of evaluation criteria.” The firm received the highest possible scores in the backup options, revenue, customer base and the technology partners criteria. It also received the highest score among all vendors in the platform support and customer feedback criteria.
• On August 7, 2017, announced it was positioned by Gartner, Inc. in the Leaders quadrant of the recently released Magic Quadrant for Data Center Backup and Recovery Solutions published in July 2017. Among vendors in the Leaders quadrant, Gartner positioned Commvault furthest on completeness of vision. This is the seventh consecutive year the firm has been named a leader in Gartner’s market evaluation for backup and recovery.
• Commvault executives, customers, partners and other thought leaders will gather to speak on enterprises’ evolving backup and recovery requirements and other key data management issues at Commvault GO 2017, the event dedicated to protecting and activating data, Nov. 6-8, 2017 in Washington, D.C.

Comments

Chairman, president and CEO Bob Hammer summarizes the quarter: "I am disappointed with our 2FQ18 results."

There were a number of six and seven figure software deals the company was unable to close that were being forecasted right up until the last several days of the quarter. Many of these deals will close in 3FQ18 and the majority by the end of 4FQ18.

This poor sales execution on large deals was primarily in the Americas.

Revenue from enterprise deals over $100,000 in software revenue in a given quarter, represented 59% of software revenue. Sales from these transactions were up 3% Y/Y. Average enterprise deal size increased yearly 10% to $287,000 during the quarter. This increase in ASP was offset by a 6% decline in the number of deals.

From a geographic perspective, Americas, EMEA, and APAC represented 57%, 29%, and 14% of software revenue respectively for the quarter. On a yearly growth basis, EMEA and APAC were up 23% and 10%, respectively, while Americas was down 7%.

The revenue mix for the quarter was split 43% software and 57% services.

During the quarter, approximately 59% of software license revenue was sold on a traditional per terabyte capacity basis. This is down from 72% in 2FQ17 and up from 66% in 1FQ18.

Commvault expects to have a much better 2HFY18. It believes the current 3FQ18 and 4FQ18 street consensus for total revenue is reasonable. This would imply total FY18 revenues approaching $708 million or 10% year-over-year growth.

The company expects full-year software growth to be in the low double-digit percentage range and services revenue growth to be in the high single digits. It anticipates that sales of traditional capacity-based licenses will continue to decline as software license revenue shifts to standalone solution sets in its platform pricing model. Subscription-based pricing models was introduced in FY18 and continue to gain traction. Expectation is to deliver Y/Y software growth in the high single digits in 3FQ18 and mid-teens in 4FQ18.

Growth for the remaining of FY18 is primarily based on the Commvault Data Platform.

To read the earnings call transcript

Fiscal period Revenue Y/Y growth Net income (loss)
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% 5.8
FY16 595.1 -2% 0.1
1Q17 152.4 10% (2.0)
2Q17 159.3 13% (0.6)
3Q17 165.8 7% (0.0)
4Q17 172.9 8% 3.2
FY17 650.5 9% 0.5
1Q18 166.0 9% (0.3)
2Q18 168.1 5% (1.0)

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