Commvault Systems, Inc. (CVLT) Earnings

Management highlights

### Strategic Positioning for AI Growth - AI is a strong structural tailwind for Commvault: AI increases total data volume, expands the attack surface for cyber threats, and creates new requirements for trusted, recoverable data. AI creates millions of new non-human identities, increasing vulnerability to breaches and requiring advanced resilience beyond basic backup. - Commvault positions itself as the foundational platform for AI resilience, providing customers with tools to protect data, govern access to data and agents, detect compromised data, and rapidly recover to a clean, trusted state to secure AI adoption. - The company's 30-year history and hybrid cloud platform is a key differentiator vs. niche competitors built for single use cases, as it supports enterprise customers' mixed on-premise, cloud, legacy, and new AI workloads on a single platform. ### Product & Ecosystem Highlights - New AI resilience capabilities were announced in Q1, with general availability coming over the next few months, including an agentic library for tracking agent access and AI Protect for impact analysis and full-stack recovery of AI environments. - Clumio, Commvault's cloud-native SaaS protection offering, remains one of the fastest growing segments of the SaaS portfolio, with particular strength protecting large cloud datasets including S3 storage, Snowflake, and other cloud-native AI workloads. - Identity resilience continues to be a key on-ramp to the Commvault Cloud platform, as identity compromise is the most common entry point for cyber attacks. New identity and data security offerings represented more than one-third of net new subscription ARR in Q1. - Commvault expanded its 25-year strategic partnership with Microsoft in Q1, adding deeper engineering collaboration for AI resilience, native availability as an integrated service within Microsoft Azure, and strengthened executive alignment to meet customer demand for in-cloud resilience. ### Operational & Commercial Highlights - The business completed key management transitions (Geoff Haydon as President of Customer and Field Operations, Gary Merrill returning as CFO) with no disruption to operations. - The company surpassed multiple key milestones in Q1: $100 million in quarterly SaaS revenue, 10,000 active SaaS customers, and SaaS gross margins over 70%. 40% of new SaaS customers are net new logos for Commvault. - The company repurchased 98,000 shares for $10 million in Q1, an initial step toward its capital allocation target of returning at least 60% of annual free cash flow to shareholders via repurchases while maintaining balance sheet flexibility.

Guidance

- For Q2 fiscal 2027, management expects subscription revenue of $264 to $268 million (20% YoY growth at the midpoint), total revenue of $310 million, and an EBIT margin of approximately 20%. - For full fiscal year 2027, management *reiterated* its prior subscription ARR guidance range of $1.20 billion to $1.21 billion, representing ~19% YoY growth at the midpoint, led by SaaS ARR which is expected to exceed $500 million by year end. - Management *increased* full year 2027 subscription revenue guidance to a range of $1.119 billion to $1.129 billion, representing ~16% YoY growth at the midpoint, while maintaining total revenue guidance of $1.30 billion to $1.31 billion. - Management *increased* full year 2027 non-GAAP EBIT margin guidance by 50 basis points to approximately 21%. - Full year 2027 free cash flow guidance is maintained at $250 to $260 million, with results expected to be weighted heavily toward the second half of the fiscal year, consistent with Commvault's seasonal business pattern.

Segment performance

Commvault reports its business under a simplified subscription framework focused on core and SaaS offerings: 1) Total Subscription: Subscription ARR grew 22% year-over-year (YoY) to $1.05 billion, with $39 million in net new subscription ARR. Subscription revenue increased 16% YoY to $267 million, and subscription revenue now represents 85% of total company revenue, up from 81% YoY. Subscription net dollar retention held steady at 114%. 2) SaaS: SaaS ARR grew 38% YoY to $424 million, with the business surpassing the 10,000 active SaaS customer milestone. SaaS revenue grew 39% YoY to exceed $100 million in quarterly revenue for the first time, representing ~32% of total company revenue. SaaS gross margin reached 70.6%, up 635 basis points YoY, crossing the 70% margin threshold. 49% of Commvault managed SaaS customers use two or more products, up from 42% one year prior. 3) Other Revenue: Non-subscription/other revenue performed in line with expectations, bringing total company revenue to $314 million, an 11% YoY increase. 4) Profitability & Cash Flow: Overall gross margin reached 82.1%. Non-GAAP EBIT grew to $71 million, with a non-GAAP EBIT margin of 22.8%, a 210 basis point improvement YoY (the best quarterly margin in over a decade). Q1 free cash flow was $51 million, growing 71% YoY.

Risks & headwinds

- Ongoing hardware supply chain constraints and memory pricing issues create modest headwinds for on-premise term software deals, with some customers delaying purchases or choosing shorter contract terms while waiting for hardware availability. These constraints have only impacted deal timing, not overall demand, and Commvault's flexible decoupled architecture allows customers to extend the life of existing hardware to mitigate delays. The shift to SaaS also offsets on-premise headwinds. - Foreign exchange (dollar strengthening) created a modest $2-3 million headwind to Q1 net new subscription ARR. - AI-driven cyber threats are growing rapidly, but enterprise AI adoption is still in early experimental stages, so meaningful monetization of AI-related resilience demand is expected to play out over a 1-3 year secular timeframe rather than driving large incremental growth in fiscal 2027. - Forward-looking results are subject to general market risks, including enterprise capital expenditure reprioritization and broader macroeconomic uncertainty that could impact deal closing timelines.

Analyst Q&A

• Q: How would you characterize the current demand environment, especially following IBM's commentary about enterprise capex reprioritization? What are the key highlights of the expanded Microsoft partnership? /

  A: Management reported overall demand remains strong, reflected in the Q1 results and built from a multi-quarter pipeline. Demand discussions are increasingly focused on AI data workloads and AI resilience, which directly benefits Commvault. The expanded Microsoft partnership deepens three core areas: deeper engineering collaboration to align Commvault's AI resilience capabilities with the Microsoft platform, native integration as a service inside Azure to make it easier for Azure customers to adopt Commvault, and strengthened executive alignment on shared priorities.

• Q: Have hardware supply constraints changed competitive dynamics, and is Commvault gaining new customers from this environment? How does the Azure partnership support new customer growth? /

  A: Management confirmed Commvault's flexible hybrid architecture is a competitive advantage during this period, as it gives customers the option to shift to cloud SaaS offerings while navigating on-premise hardware delays. The fast-growing Clumio cloud-native business is already a major driver of new customer acquisition, with 40% of all new SaaS customers being net new logos for Commvault. The native Azure integration makes Commvault more accessible to Azure customers, further accelerating new customer adoption of the company's SaaS offerings.

• Q: What is the opportunity to gain share from legacy competitor Veritas as large volumes of Veritas contracts come up for renewal over the next 1-2 years? /

  A: Management confirmed the renewal opportunity is tracked closely, and Commvault is consistently taking share from legacy vendors like Veritas. The company does not quantify the opportunity publicly, but notes that enterprise customers have evolved beyond basic backup to require full cyber and AI resilience, which Commvault delivers on a single hybrid platform. This creates a strong value proposition for customers looking to switch from legacy solutions.

• Q: Why did you maintain rather than raise full-year ARR guidance despite the strong Q1 start, especially given the shift to SaaS and hardware headwinds? /

  A: Management noted Commvault guides ARR on an annual basis, and the strong Q1 performance puts the company exactly on pace to hit the full-year target. The guidance already incorporates all current market conditions including hardware supply constraints and the ongoing shift from on-premise to SaaS. Most net new ARR is expected to come in the second half of the year due to renewal seasonality, so there is no reason to adjust guidance this early in the fiscal year. Q1 did have modest headwinds from FX and lower-than-average perpetual-to-subscription conversions, which means the underlying organic SaaS growth is already strong enough to offset these factors.