Commvault Systems, Inc.

Thank you for standing by. My name is Cass, and I will be your conference operator today. At this time, I would like to welcome everyone to the CommVault Q1 fiscal year 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mike Melnyk, Head of Investor Relations. Please go ahead.

Good morning and welcome to our earnings conference call. Before we begin, I'd like to remind you that statements made on today's call will include forward-looking statements about Commvault's future expectations, plans, and prospects. All such forward-looking statements are subject to risks, uncertainties, and assumptions. Please refer to the cautionary language in today's earnings release and Commvault's most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in these forward-looking statements. Commvault does not assume any obligation to update these statements. During this call, Commvault's financial results are presented on a non-GAAP basis. A reconciliation between the non-GAAP and GAAP measures can be found on our website. Thank you again for joining us. Now I'll turn it over to our CEO, Sanjay Merchandani, for his opening remarks. Sanjay?

Thanks, Mike. Good morning, and thank you for joining today's call.

Q1 was an outstanding quarter and start to our fiscal year. We saw great momentum across all our primary KPIs this quarter. Total revenue increased 13% to $225 million. Total ARR rose 17% to $803 million. Subscription ARR accelerated 27% to $636 million. SaaS ARR jumped 66% to $188 million. And we did this profitably while investing in growth initiatives and hitting record Q1 free cash flow margins. Our ConvoClub platform continues to accelerate our growth as more companies turn to us for industry-leading cyber resilience. We're rapidly becoming an integral part of the security conversation. In Q1, we had more conversations with CISOs and CIOs than ever before, which contributed to our record results and set the stage for continued momentum through the fiscal year. The need for resilience is paramount, whether that's recovering from a cyber attack, a natural disaster, human error, or as we've recently seen, a massive global outage from a faulty patch. We help our customers navigate these challenges in three critical areas.

risk, readiness, and recovery. Let's discuss each one.

First, we help businesses reduce their risk. According to our recent cyber resilience readiness report, 83% of organizations have experienced a material security breach, with over 50% occurring in the past year alone. Capabilities like Commvault ThreatWise reduce risk by providing advanced threat detection. In Q1, sales of our ThreatWise offerings doubled year over year. Additionally, while AI enhances cyber resilience, it can also create a bigger attack surface for organizations. Our AI-enabled Active Insights technology is helping customers conduct real-time threat analysis to assess their cyber resilience. Second, in addition to managing their risk, businesses need to be ready That includes being ready for the type of global outage we saw a week ago, which includes having an immutable air gap copy of your data. We provide that to over 3,000 of our customers every day with our air gap protect offering. That said, research shows that bad actors are going to get in. So how do businesses know that they can be ready when that happens? It comes down to regularly testing cyber recovery plans. We've revolutionized how that's done. Our clean room recovery offering enables businesses to easily, frequently, and affordably test their cyber recovery plans in advance, in good times, across workloads, at scale, on demand. Nobody else does this. While this offering is new to the market, global pharmaceutical, healthcare, and transportation organizations have already invested in our clean room technology and are taking advantage of it. And at the RFA conference, Commvault was named the winner for Trailblazing Cyber Resilience by Cyber Defense Magazine. Third, when breached, businesses need to recover their data and rebuild their cloud applications fast. Traditionally, this has taken weeks or months. Not anymore. The Appranix technology required at the start of the quarter is allowing customers to reduce that time to days or hours. We'll have much more to say about this groundbreaking capability in the coming months, as we integrate and enhance this offering within our Commvault platform. Our ability to help customers reduce their risk, enhance their readiness, and quickly recover is critical to enabling their resilience. However, customers also turn to us to help securely accelerate their hybrid cloud modernization journeys. I'm proud that as of today, we've enabled customers to move approximately five exabytes of data in the public cloud. That's nearly a tenfold increase over the past five years. And we do this while enabling them to do it efficiently while minimizing the total cost of ownership. For example, we recently helped Lendlease, a global real estate lender, migrate its data center footprint onto the cloud while reducing complexity and gaining significant operational efficiencies. As a result, they achieved a 50% lower total cost of ownership for data management using Compile Cloud. Additionally, Enoch Group, a leading global energy provider, harnessed Commvault Cloud to modernize its on-premise and cloud infrastructure to drive improved operational efficiencies, reduce overhead, and enhance business continuity across its network. It now takes them 67% less time to restore their data while achieving an 88% cost-to-system recovery and a 40% reduction in operating expenses. And being a trusted, proven partner doesn't stop there. During the quarter, we also extended our cyber resiliency leadership for government organizations. Among our top competitors, we are the only company to achieve FedRAMP's high authorization. With this, Commvault Cloud for Government can now securely handle controlled, unclassified information in cloud computing environments for government agencies and contractors. Additionally, Commvault Cloud is now on the AWS marketplace for the U.S. federal government. Finally, during the quarter, we continue to strengthen our executive bench to drive our next wave of growth and evolution. A few weeks ago, we announced that Gary Merrill will become the company's first chief commercial officer, leading our sales and partner teams. Throughout his tenure at Commvault and as our CFO, Gary has worked closely with our sales and partner teams globally, In his new role, we believe he's ideally suited to lead the charge for Commvault. With this change, we're excited to announce that Jen DiRico will join us as CFO on August 12th. Jen spent close to a decade at Toast, where she was instrumental in its successful IPO. As a member of the Toast senior leadership team, she contributed to the company's significant success and expansion, including growing its ARR to over $1 billion. We believe Jen's extensive financial and operational experience will enable us to accelerate growth here at Commvault as well. Jen will lead our earnings discussions after she officially joins the company in a couple of weeks. Today, Danielle Abrahamson, our Chief Accounting Officer, who I've worked with on earnings calls for 22 straight quarters, will lead this discussion as Gary tends to a personal family matter. With that, I will now turn the call over to Danielle to discuss our results. Danielle?

Thank you, Sanjay, and good morning, everyone. As Sanjay mentioned, we had a record start to the fiscal year, delivering our third consecutive quarter of double-digit total revenue growth with accelerating momentum across all our key metrics. I'll recap our Q1 results before providing our Q2 outlook and increased guidance for the full fiscal year 25. As a reminder, all growth rates are on a year-over-year basis unless otherwise noted. For fiscal Q1, total revenue growth accelerated 13% to $225 million, driven by a 28% increase in subscription revenue, which now exceeds 55% of total revenue. Subscription revenue growth was fueled by increased contributions from our SAS portfolio and continued double-digit growth in term software licenses, well ahead of the market growth rate. Our software revenue growth reflected a healthy balance between renewals and another strong quarter of land and expand fitness. Once again, we saw revenue from term software transactions over $100,000 increase by 13% as we closed an accelerated volume of larger deals. From a product perspective, our Commvault cloud platform is resonating in the market as we have started to monetize our cyber resilience offerings. From a geographic perspective, we were also pleased as both the Americas and international regions had impressive growth with each achieving double-digit term software and total revenue growth. Q1 perpetual license revenue was $14 million. as perpetual licenses are sold in limited verticals and geographies. We believe we are approaching a steady state run rate of perpetual license sales. Q1 customer support revenue, which includes support for both our term-based and perpetual software licenses, was $76 million, down 1% sequentially and year over year. In Q1, we reached the key inflection point where customer support revenue derived from terms, software, and related arrangements crossed over 50% of total customer support revenue compared to 44% in Q1 of the prior year. Now I'll discuss ARR. Q1 total ARR growth accelerated 17% to $803 million. Subscription ARR, including term-based licenses and SAS contracts, grew 27% year-over-year to $636 million, or 79% of total ARR. This includes $188 million of SAS ARR, which jumped 66% from a year ago. SAS continues to be the primary driver of our new ARR growth, contributing over 60% of our total ARR growth in the quarter. SAS now represents 23% of total ARR compared to just 17% a year ago. From a customer perspective, we added approximately 600 subscription customers during the quarter and ended the quarter with 9,900 subscription customers, representing over 65% of our install base. Existing customer expansion was strong, with Q1 SaaS net dollar retention of 127%, being benefited by both upsell and cross-sell activities. We saw accelerated growth in SaaS ARR from hybrid cloud workloads and our newer workloads, such as Active Directory and Cleanroom. Now, I'll discuss expenses and profitability. Fiscal Q1 growth margins was 83%, roughly flat year over year, benefiting from continued SAS growth margin improvement and the growth in term software licenses. Fiscal Q1 operating expenses increased 15% to $137 million, including costs associated with our appearance at the RSA conference, a live in-person sales kickoff event, and higher commissions and bonuses on record revenue. We ended the quarter with approximately 3,000 employees, an increase of 4% sequentially, including strategic resource investments and onboarding the employees brought over through the apprentice acquisition. Non-GAAP EBIT for Q1 was $48 million, and non-GAAP EBIT margins were 21.5%, demonstrating our commitment to a responsible growth philosophy. Moving to some key balance sheet and cash flow metrics, we ended the quarter with no debt and $288 million in cash. Our Q1 free cash flow grew 16% year-over-year to $44 million, reflecting continued growth in SAS deferred revenue and the strength of our software subscription business, which typically includes upfront payment on multi-year contracts. In Q1, we repurchased $51 million of stock representing 117% of free cash flow. We now have $205 million remaining on our existing share of repurchase authorization. Now, I'll discuss our outlook for fiscal Q2 and our improved guidance for fiscal year 25. For fiscal Q2... We expect subscription revenue, which includes both the software portion of term-based licenses and SAS, to be $120 to $124 million. This represents 25% year-over-year growth at the midpoint. As a result, we expect total revenue to be $218 to $222 million, with a growth of 9% at the midpoint. At these revenue levels, we expect Q2 consolidated growth margins to be in the range of 81 to 82%. We expect Q2 non-GAAP event margin to be in the range of 19 to 20%. Our projected diluted share count for fiscal Q2 is approximately 45 million shares. As you saw in this morning's press release, we have raised our outlook for the full fiscal year 25. we now expect fiscal year 25 total ARR growth of 15% year over year. We expect subscription ARR to increase in the range of 23% to 25% year over year. From a full year fiscal 25 revenue perspective, we now expect subscription revenue to be in the range of $522 to $527 million, growing 22% year over year at the midpoint. with strong contributions from both term software licenses and SAS. We now expect total revenue growth to accelerate and be in the range of $915 to $925 million, an increase of approximately 9.5% at the midpoint. Moving to our updated full-year fiscal 25 margin, EBIT, and cash flow outlook, We continue to expect growth margins to be in the range of 81.5% to 82.5%, inclusive of the accelerating contribution of our SaaS business. We also continue to expect non-GAAP EBIT margins to be in the range of 20% to 21%, inclusive of certain focused investments to continue our revenue momentum. From a free cash flow perspective, we continue to expect full-year free cash flow of at least $200 million. And lastly, we expect to continue with our existing practice of repurchasing at least 75% of our annual free cash flow. As a reminder, for fiscal year 25, we lowered our non-GAAP tax rate from 27% down to 24%. We believe that a 24% rate more closely aligns with our effective tax rate expectations over the next few years. Given our initial momentum to start fiscal year 25, our updated fiscal year 25 outlook, the current cyber market tailwinds, and our execution momentum in the field, we remain confident that we can deliver on our fiscal 26 ARR aspirations of total ARR of $1 billion. with subscription ARR representing 90% of total ARR, including an accelerating SAS contribution ranging from $310 to $330 million. For additional details and trends on all of our key metrics, please take time to review our earnings presentation contained in the Investor Relations section of our website. Operator, you can now open the line for questions.

Thank you, we will not begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not in mute when asking your question. Again, press star one to join the queue. Your first question comes from the line of Aaron Rakers with Wells Fargo. Your line is open.

Yeah, thanks for taking the question. Congrats on the solid results here in the quarter. Maybe I'll just start by asking, you know, the current macro environment, maybe the deal activity flow pipeline, you know, discussion. And then, you know, kind of tied to that, you know, Sanjay, I'd be interested in and kind of what you're hearing from customers following the CrowdStrike downage, obviously the cyber resiliency strategy for Commvault's resonating, but curious of what your customer engagements have been like, I know be it early, but since that outage a week or so ago.

Good. Aaron, thanks. Thanks for the question. Good morning. You know, it's been a good quarter because fundamentally, we're solving a hard problem for our customers with resilience in general, but cyber resilience in particular. And what we're seeing is macroeconomic situation is we're drawing the straight line as it was from the previous quarters. Our pipeline looks good. We're having a lot of conversations with CISOs and CIOs at the same time around resilience. And what the CrowdStrike incident really brought to the floor wasn't so much of a direct line to us and what we do outside of our secure cloud capabilities, air gap protect, which had just been a malicious thing. Customers would have had an off-site secure copy. It's bringing up the conversation repeatedly around resilience. And this was not a malicious situation. It was a trusted environment that went wrong. And you need to be resilient. to recover from that, just as you would with cyber. Had it been a cyber situation, we'd still be sort of scrambling, trying to figure out what happened, what our environment looks like, what do we need to do to fix it? So the conversation around resilience is categorically resonating and making a difference.

Yeah, very good.

And then just as a quick follow-up, you mentioned the 127% net dollar retention number, and you mentioned good upsells. cross-sell opportunities. I'm curious with Metallic, is there any kind of added commentary or quantification that you could give us in terms of what you're seeing from a cross-sell opportunity perspective as that business continues to grow rapidly?

Let me give you a little bit of color, and then Danielle will fill in some numbers for you. What we're seeing is our new workloads, our hybrid workloads growing quite substantially. So, you know, outside of the Office 365 type workloads, you know, we're seeing our secure storage, AirGap Protect, Active Directory, and, you know, our Kubernetes container cloud-based workloads growing handsomely. That bodes well for us because that shows mission-critical cloud-native applications being backed up and secured in the cloud. We've got over 3,000 customers using AirGap Protect, which is substantial. And we talked about threat-wise, our threat deception capability doubling year on year. We've seen Active Directory get off to a great start. So we're seeing that there's a lot of third of our customers tend to have more than one product out of the door, okay? So there's good traction. I'll let Danielle add some more color there if you want.

Yeah, yeah, thanks, Aaron. Thanks for the question. Good morning. So when we launched our Conval Cloud platform, right, our objective was really to create one unified platform that allowed our customers to easily navigate between their software and their SaaS offerings. And so what that did is it allowed us a natural opportunity to monetize on that navigation. And we've really seen the traction in that. In particular, about a year ago, we saw about, call it a quarter of our cross-sell opportunities coming out of our expand revenue. That number is closer to a third today. So we are really seeing the way that customers are buying changing products. the way that Sanjay spoke about in his opening remarks.

Very good. Thank you, guys. Thank you.

Your next question comes from the line of Howard Ma with Guggenheim Securities. Your line is open.

Great. Thank you.

Sanjay, hats off to you and the team for the strong performance. It looks like a clean print all around. I want to ask you about investments in two areas that may be under-penetrated for Commvault, and those are the government verticals and the Asia-Pacific region. So Commvault Cloud recently achieved a FedRAMP high authorization, as you just mentioned, in your prepared remarks. You also expanded your partnership with Kerasoft, targeting the U.S. intelligence community. And then in AsiaPAC, you recently hired a field CTO focused on security in that region. So my question to you is how impactful are those investments and should we expect them to bear fruit this year?

Hey, Howard, good to hear from you and thank you for your support. So government, federal government, governments around the world are a definite area of focus. We went through the long journey of getting our technology FedRAMP high certified. And, you know, we're in a very rarefied space with that certification. Most of our competitors don't even come close on the level of certification that we have. In addition, we're making our technology far easier to obtain and access by being on marketplaces like the AWS federal marketplace, government marketplace that we just announced. So, you know, from a safety level and, you know, that federal government agencies are looking for, we have it. access we're getting there. And we're also investing in specialized field resources, as you've observed with our field CTO community, that are deeply rooted in security issues, cyber issues, and can take some of our capabilities from a compliance point of view and standards point of view to governments around the world. So it's an active area of investment for us, mostly on the product side, now a little bit on the go-to-market side. So that's kind of how we're thinking about it. If you look, also the channels, so Kerasoft, et cetera, that's the go-to-market side that we're enabling and making sure we're close with. On APAC, we are doing some modest growth there. You know, our focus has historically been Asia-Pacific as it is A and Z. Australia, New Zealand, Singapore, Southeast Asia, and a little bit in mainland China. That's been our focus area. We're continuing to go deeper. There's a lot of opportunity there coming up, and we're investing there. But again, it's part of our plan, and it's part of everything we've shared as part of fiscal year 25.

Got it. Well, thank you for that added color. And I want to ask Danielle as well, is it I was trying to figure out the strength in subscription and SAS and specifically new term license, at least the way that we tried to back into it. And the question for you is that it makes me wonder, has your gross renewal rate, has that been picking up? And also, are you benefiting more from one-year subscription renewals this year? Thanks.

Yeah, thanks, Howard. Thanks for the question. Good morning. So the first thing I want to say, right, the This quarter, Q1, we saw very balanced contribution from all the items on our subscription line, right? So that's our software renewals, our software land expand opportunities, and our staff. When I think about term in particular, and I think I mentioned this in my prepared remarks, right, we actually saw 13% growth rate on our large deals, on our over $100,000 deals. And much of that was actually driven by volume, though. You mentioned our GRR rate. We are seeing our GRR rate strengthen, so we are seeing good signs, but I really want to highlight the fact that the success of the quarter really came from that balanced contribution of all those pieces in the subscription line.

Great. Thanks so much, Danielle.

Your next question comes from the line of James Fish with Piper Seller. Your line is open.

Hey, guys. Nice quarter there. Actually, I want to go back to last quarter a little bit where you guys had another good quarter, and actually that Dell announcement kind of went fairly unnoticed. Just any update on how that relationship has kind of gone out of the gate and sort of the ability to hit milestones from here? Hey, Jim. It's Andre.

How are you? So, you know, when we announced it, Sort of right around this time last quarter, we said it was a long-term sort of initiative for us to go after the install base, the Veritas install base, and partnering with Dell on their data domain install base. This is a, we're going to, you know, we're going to compete until we decide, until the customer decides they want both of us. So that's how it's working. We're in situations where customers want us to come in, want us to do a proof of concept, want us to help them move. We're in the throes of it. And I never expected it to be a 60-, 90-day big hit. This is a ramp that is taking out an entrenched sort of install base that will take a little bit of time, and it's moving exactly the way we'd expect and want. So nothing yet, but more down the road, we will share more data down the road.

Yeah, makes sense. And Danielle, thanks for all the color and for jumping on the call here with us. But as we think about this fiscal Q2 guide, why the sequential drop on subscription, understanding the duration on term deals is getting closer and closer to two years. But if we look back three years ago, when deals were kind of being signed at three-year durations more so, it was, you know, better than down sequentially, and Metallic's been, you know, actually accelerating. So, I guess, is this just, you know, being prudently conservative, or is there something on the macro side that you guys are a little bit more cautious on?

Hi, Jim. Yeah, no, thanks for the question. So I wouldn't say we're being prudently conservative. I mean, you know, we raised our guidance going into Q2. And a lot of that, a lot of what you see is actually the momentum that we're seeing in staff, right? So there's a couple pieces that go into that subscription line I mentioned, right? the subscription renewals, which we're going into a slightly, we have a slightly smaller renewal pool in Q2, right? So we're factoring into that. But really, it goes back into the momentum and the capitalization of SaaS in that line, right? And obviously, SaaS is recognized radically. So we don't see the benefit of that, you know, in the following quarter, but instead over time. And I think you can really see that in the growth rate we're seeing in our SaaS ARR.

Makes sense. Thanks, guys. Thanks.

Again, if you would like to ask a question, press star 1 on your telephone keypad. Your next question comes from the line of Rudy Kessinger with DA Davidson. Your line is open.

Hey, guys. Thanks for taking my questions, and I'll add my congrats to the quarter. The new ARR figures especially look very, very impressive. I know it sounds like you're saying, Strengthening the quarter was kind of broad-based. I want to maybe narrow in on two issues. Firstly, cyber resilience. I believe I heard you say you're starting to monetize that. Could you just expand on that? How materially did that contribute in the quarter? Is there any color you can share just on the type of ASP uplift you're seeing in deals that include some of your cyber resilience products?

Yeah, thanks, Rudy, for the question. Good morning. Maybe I'll start and talk about the quarter, and then I'll hand it over to Sanjay to talk about what we're seeing in the broader market, right? So we had a material contribution from our cyber resiliency offerings this quarter, in particular our cyber recovery and our autonomous recovery bundle. And actually, that traction that we saw this quarter is part of what gave us the confidence to raise the guidance for the rest of the year. Sanjay, you want to talk through?

Yeah, so really the way to think about our cyber resilience, it isn't one SKU. It's an overall platform with Compile Cloud that delivers services that are integrated. So in other words, a customer using our software, let's say our cyber resilient SKU, can avail of services that are delivered through the cloud through our SaaS-based capabilities like AirGap or ThreatWise. Okay, so it's an integrated play. And what we're seeing is that the uplift we're getting is that customers are actually looking at the platform in its entirety for that solution. And since we've released the autonomous and cyber resilience SKUs, which integrate these services, we've seen a marked uplift in the pipeline and to some level even in Q1 on the contribution. So that's the way to think about it.

Okay, got it. And I know James just asked about Dell, and it sounds like, you know, you sound confident on it, but... Work in progress.

It's work in progress. It's, you know, this is, you know, we are competitors. We are also collaborators, you know. So it's a relationship that we're, you know, we're building out, and we're excited about it. I think the potential is massive, and the work is going on. The teams are working. Well, I guess...

Yeah, I guess the broader question, I guess, is going to be just the pace of legacy displacement between Dell and obviously a couple others. Have you seen any increase in the pace of legacy displacement over the last couple quarters, or has it been kind of steady state?

No, no, we have. We have. You know, whether it's ransomware or it's now resilience, you know, there is a marked focus by boards. by audit committees, by leadership teams inside companies to say, are we resilient? Do we have the best technology and the best capabilities to protect ourselves? And some of the legacy stuff is incomplete. And so there is a big part of our pipeline is refresh of some of the install base.

Okay, that's helpful. Great, thanks, yeah.

That concludes our Q&A session. I will now turn the conference back over to Mike Melnick for closing remarks.

Thanks for everyone for joining us today. As a reminder, we have a presentation on the Investor Relations website. If you have any questions, feel free to reach out to me, and we will look forward to seeing you at some upcoming conferences. Thanks very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Please wait. The conference will begin shortly. We'll be right back. you

Thank you for standing by. My name is Kath, and I will be your conference operator today. At this time, I would like to welcome everyone to the CommVault Q1 Fiscal Year 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mike Melnick, Head of Investor Relations. Please go ahead.

Good morning, and welcome to our earnings conference call. Before we begin, I'd like to remind you that statements made on today's call will include forward-looking statements about Commvault's future expectations, plans, and prospects. All such forward-looking statements are subject to risks, uncertainties, and assumptions. Please refer to the cautionary language in today's earnings release and Commvault's most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties if it caused the company's actual results to be materially different from those contemplated in these forward-looking statements. Commvault does not assume any obligation to update these statements. During this call, Commvault's financial results are presented on a non-GAAP basis. A reconciliation between a non-GAAP and GAAP measures can be found on our website. Thank you again for joining us. Now I'll turn it over to our CEO, Sanjay Merchandani, for his opening remarks. Sanjay?

Thanks, Mike. Good morning and thank you for joining today's call.

Q1 was an outstanding quarter and start to our fiscal year. We saw great momentum across all our primary KPIs this quarter. Total revenue increased 13% to $225 million. Total ARR rose 17% to $803 million. Subscription ARR accelerated 27% to $636 million. SAS ARR jumped 66% to $188 million. And we did this profitably while investing in growth initiatives and hitting record Q1 free cash flow margins. Our ConvoCloud platform continues to accelerate our growth as more companies turn to us for industry-leading cyber resilience. We're rapidly becoming an integral part of the security conversation. In Q1, we had more conversations with CISOs and CIOs than ever before, which contributed to our record results and set the stage for continued momentum through the fiscal year. The need for resilience is paramount, whether that's recovering from a cyber attack, a natural disaster, human error, or as we've recently seen, a massive global outage from a faulty patch. We help our customers navigate these challenges in three critical areas, risk, readiness, and recovery.

Let's discuss each one.

First, we help businesses reduce their risk. According to our recent Cyber Resilience Readiness Report, 83% of organizations have experienced a material security breach, with over 50% occurring in the past year alone. Capabilities like Commvault ThreatWise reduce risk by providing advanced threat detection. In Q1, sales of our ThreatWise offerings doubled year over year. Additionally, while AI enhances cyber resilience, it can also create a bigger attack surface for organizations. Our AI-enabled Active Insights technology is helping customers conduct real-time threat analysis to assess their fiber resilience. Second, in addition to managing their risk, businesses need to be ready. That includes being ready for the type of global outage we saw a week ago, which includes having an immutable air gap copy of your data. We provide that to over 3,000 of our customers every day, with our AirGap Protect offering. That said, research shows that bad actors are going to get in. So how do businesses know that they can be ready when that happens? It comes down to regularly testing cyber recovery plans. We've revolutionized how that's done. Our clean room recovery offering enables businesses to easily, frequently, and affordably test their cyber recovery plans in advance, in good times, across workloads, at scale, on demand. Nobody else does this. While this offering is new to the market, global pharmaceutical, healthcare, and transportation organizations have already invested in our cleanroom technology and are taking advantage of it. And at the RSA conference, Commvault was named the winner for Trailblazing Cyber Resilience by Cyber Defense Magazine. Third, when reached, Businesses need to recover their data and rebuild their cloud applications fast. Traditionally, this has taken weeks or months. Not anymore. The Appranix technology required at the start of the quarter is allowing customers to reduce that time to days or hours. We'll have much more to say about this groundbreaking capability in the coming months as we integrate and enhance this offering within our Commvault platform. Our ability to help customers reduce their risk enhance their readiness, and quickly recover is critical to enabling their resilience. However, customers also turn to us to help securely accelerate their hybrid cloud modernization journeys. I'm proud that as of today, we've enabled customers to move approximately five exabytes of data in the public cloud. That's nearly a tenfold increase over the past five years. And we do this while enabling them to do it efficiently while minimizing the total cost of ownership. For example, we recently helped Lendlease, a global real estate lender, migrate its data center footprint onto the cloud while reducing complexity and gaining significant operational efficiencies. As a result, they achieved a 50% lower total cost of ownership for data management using Compile Cloud. Additionally, Enoch Group, a leading global energy provider, harnessed Commvault Cloud to modernize its on-premise and cloud infrastructure to drive improved operational efficiencies, reduce overhead, and enhance business continuity across its network. It now takes them 67% less time to restore their data while achieving an 88% cost-to-system recovery and a 40% reduction in operating expenses. And being a trusted, proven partner doesn't stop there. During the quarter, we also extended our cyber resiliency leadership for government organizations. Among our top competitors, we are the only company to achieve FedRAMP's high authorization. With this, Commvault Cloud for Government can now securely handle controlled, unclassified information in cloud computing environments for government agencies and contractors. Additionally, Commvault Cloud is now on the AWS marketplace for the U.S. federal government. Finally, during the quarter, we continued to strengthen our executive bench to drive our next wave of growth and evolution. A few weeks ago, we announced that Gary Merrill would become the company's first chief commercial officer, leading our sales and partner teams. Throughout his tenure at Commvault and as our CFO, Gary has worked closely with our sales and partner teams globally. In his new role, we believe he's ideally suited to lead the charge for Commvault. With this change, we're excited to announce that Jen DiRico will join us as CFO on August 12th. Jen spent close to a decade at Toast, where she was instrumental in its successful IPO. As a member of the Toast senior leadership team, she contributed to the company's significant success and expansion, including growing its ARR to over $1 billion. We believe Jen's extensive financial and operational experience will enable us to accelerate growth here at Commvault as well. Jen will lead our earnings discussions after she officially joins the company in a couple of weeks. Today, Danielle Abrahamson, our Chief Accounting Officer, who I've worked with on earnings calls for 22 straight quarters, will lead this discussion as Gary tends to a personal family matter. With that, I will now turn the call over to Danielle to discuss our results. Danielle?

Thank you, Sanjay, and good morning, everyone. As Sanjay mentioned, we had a record start to the fiscal year, delivering our third consecutive quarter of double-digit total revenue growth with accelerating momentum across all our key metrics. I'll recap our Q1 results before providing our Q2 outlook and increase guidance for the full fiscal year 25. As a reminder, all growth rates are on a year-over-year basis unless otherwise noted. For fiscal Q1, total revenue growth accelerated 13% to $225 million, driven by a 28% increase in subscription revenue, which now exceeds 55% of total revenue. Subscription revenue growth was fueled by increased contributions from our SaaS portfolio and continued double-digit growth in term software licenses, well ahead of the market growth rate. our software revenue growth reflected a healthy balance between renewals and another strong quarter of land and expand fitness. Once again, we saw revenue from term software transactions over $100,000 increase by 13% as we closed an accelerated volume of larger deals. From a product perspective, our Commvault cloud platform is resonating in the market as we have started to monetize our cyber resilience offering. From a geographic perspective, we were also pleased as both the Americas and international regions had impressive growth with each achieving double-digit term software and total revenue growth. Q1 perpetual license revenue was $14 million as perpetual licenses are sold in limited verticals and geographies. We believe we are approaching a steady state run rate of perpetual license sales. Q1 customer support revenue which includes support for both our term-based and perpetual software licenses with $76 million, down 1% sequentially and year over year. In Q1, we reached the key inflection point where customer support revenue derived from term software and related arrangements crossed over 50% of total customer support revenue compared to 44% in Q1 of the prior year. Now I'll discuss ARR. Q1 total ARR growth accelerated 17% to $803 million. Subscription ARR, including term-based licenses and SAS contracts, grew 27% year-over-year to $636 million, or 79% of total ARR. This includes $188 million of SAS ARR, which jumped 66% from a year ago. SAS continues to be the primary driver of our new ARR growth, contributing over 60% of our total ARR growth in the quarter. SAS now represents 23% of total ARR compared to just 17% a year ago. From a customer perspective, we added approximately 600 subscription customers during the quarter and ended the quarter with 9,900 subscription customers representing over 65% of our install base. Existing customer expansion was strong, with Q1 SaaS net dollar retention of 127%, being benefited by both upsell and cross-sell activities. We saw accelerated growth in SaaS ARR from hybrid cloud workloads and our newer workloads, such as Active Directory and Cleanroom. Now I'll discuss expenses and profitability. Fiscal Q1 growth margins was 83%, roughly flat year over year, benefiting from continued SAS growth margin improvement and the growth in term software licenses. Fiscal Q1 operating expenses increased 15% to $137 million, including costs associated with our appearance at the RSA conference, a live in-person sales kickoff event, and higher commissions and bonuses on record revenue. We ended the quarter with approximately 3,000 employees, an increase of 4% sequentially, including strategic resource investments and onboarding the employees brought over through the apprentice acquisition. Non-GAAP EBIT for Q1 was $48 million, and non-GAAP EBIT margins were 21.5%, demonstrating our commitment to a responsible growth philosophy. Moving to some key balance sheet and cash flow metrics, we ended the quarter with no debt and $288 million in cash. Our Q1 free cash flow grew 16% year-over-year to $44 million, reflecting continued growth in SAS deferred revenue and the strength of our software subscription business, which typically includes upfront payment on multi-year contracts. In Q1, we repurchased $51 million of stock representing 117% of free cash flow. We now have $205 million remaining on our existing share of repurchase authorization. Now, I'll discuss our outlook for fiscal Q2 and our improved guidance for fiscal year 25. For fiscal Q2, We expect subscription revenue, which includes both the software portion of term-based licenses and SAS, to be $120 to $124 million. This represents 25% year-over-year growth at the midpoint. As a result, we expect total revenues to be $218 to $222 million, with a growth of 9% at the midpoint. At these revenue levels, we expect Q2 consolidated growth margins to be in the range of 81 to 82%. We expect Q2 non-GAAP EBIT margin to be in the range of 19 to 20%. Our projected diluted share count for fiscal Q2 is approximately 45 million shares. As you saw in this morning's press release, we have raised our outlook for the full fiscal year 25. we now expect fiscal year 25 total ARR growth of 15% year over year. We expect subscription ARR to increase in the range of 23% to 25% year over year. From a full year fiscal 25 revenue perspective, we now expect subscription revenue to be in the range of $522 to $527 million, growing 22% year over year at the midpoint. with strong contributions from both term software licenses and FAS. We now expect total revenue growth to accelerate and be in the range of $915 to $925 million, an increase of approximately 9.5% at the midpoint. Moving to our updated full-year fiscal 25 margin, EBIT, and cash flow outlook, We continue to expect growth margins to be in the range of 81.5% to 82.5%, inclusive of the accelerating contribution of our SaaS business. We also continue to expect non-GAAP EBIT margins to be in the range of 20% to 21%, inclusive of certain focused investments to continue our revenue momentum. From a free cash flow perspective, we continue to expect full-year free cash flow of at least $200 million. And lastly, we expect to continue with our existing practice of repurchasing at least 75% of our annual free cash flow. As a reminder, for fiscal year 25, we lowered our non-GAAP tax rate from 27% down to 24%. We believe that a 24% rate more closely aligns with our effective tax rate expectations over the next few years. Given our initial momentum to start fiscal year 25, our updated fiscal year 25 outlook, the current cyber market tailwinds, and our execution momentum in the field, we remain confident that we can deliver on our fiscal 26 ARR aspirations of total ARR of $1 billion. with subscription ARR representing 90% of total ARR, including an accelerating SAS contribution ranging from $310 to $330 million. For additional details and trends on all of our key metrics, please take time to review our earnings presentation contained in the Investor Relations section of our website. Operator, you can now open the line for questions.

Thank you. We will not begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. Your first question comes from the line of Aaron Rakers with Wells Fargo. Your line is open.

Yeah, thanks for taking the question. Congrats on the solid results here in the quarter. Maybe I'll just start by asking, you know, the current macro environment, maybe the deal activity flow pipeline, you know, discussion. And then, you know, kind of tied to that, you know, Sanjay, I'd be interested in and kind of what you're hearing from customers following the CrowdStrike downage, obviously the cyber resiliency strategy for Commvault's resonating, but curious of what your customer engagements have been like, I know be it early, but since that outage a week or so ago.

Good. Aaron, thanks. Thanks for the question. Good morning. You know, it's been a good quarter because fundamentally, we're solving a hard problem for our customers with resilience in general, but cyber resilience in particular. And what we're seeing is macroeconomic situation is, we're drawing the straight line as it was from the previous quarters. Our pipeline looks good. We're having a lot of conversations with CISOs and CIOs at the same time around resilience. And what the CrowdStrike incident really brought to the floor wasn't so much of a direct line to us and what we do outside of our secure cloud capabilities, air gap protect, which had been a malicious thing. Customers would have had an off-site secure copy. It's bringing up the conversation repeatedly around resilience. And this was not a malicious situation. It was a trusted environment that went wrong. And you need to be resilient. to recover from that just as you would with cyber. Had it been a cyber situation, we'd still be sort of scrambling, trying to figure out what happened, what our environment looks like, what do we need to do to fix it? So the conversation around resilience is categorically resonating and making a difference.

Yeah, very good. And then just as a quick follow-up, you mentioned the 127% net dollar retention number and you mentioned good upsells. cross-sell opportunities. I'm curious with Metallic, is there any kind of added commentary or quantification that you could give us in terms of what you're seeing from a cross-sell opportunity perspective as that business continues to grow rapidly?

Let me give you a little bit of color, and then Danielle will fill in some numbers for you. What we're seeing is our new workloads, our hybrid workloads growing quite substantially. So, you know, outside of the Office 365 type workloads, you know, we're seeing our secure storage, air gap protect, active directory, and, you know, our Kubernetes container cloud-based workloads growing handsomely. That bodes well for us because that shows mission-critical cloud-native applications being backed up and secured in the cloud. We've got over 3,000 customers using AirGap Protect, which is substantial. And we talked about threat-wise, our threat deception capability doubling year on year. We've seen Active Directory get off to a great start. So we're seeing that there's a lot of, a third of our customers tend to have more than one product out of the door. Okay? So there's good traction. I'll let Danielle add some more color there if you want.

Yeah, yeah. Thanks, Aaron. Thanks for the question. Good morning. So when we launched our Conval Cloud platform, right, our objective was really to create one unified platform that allowed our customers to easily navigate between their software and their SaaS offerings. And so what that did is it allowed us a natural opportunity to monetize on that navigation. And we've really seen the traction in that. In particular, about a year ago, we saw about, call it a quarter of our cross-sell opportunities coming out of our expand revenue. That number is closer to a third today. So we are really seeing the way that customers are buying changing. the way that Sanjay spoke about in his opening remarks.

Very good. Thank you, guys. Thank you.

Your next question comes from the line of Howard Ma with Guggenheim Security. Your line is open.

Great. Thank you.

Sanjay, hats off to you and the team for the strong performance. It looks like a clean print all around. I want to ask you about investments in two areas that may be under-penetrated for Commvault, and those are the government vertical and the Asia-Pacific region. So Commvault Cloud recently achieved a FedRAMP high authorization, as you just mentioned in your prepared remarks. You also expanded your partnership with Kerasoft, targeting the U.S. intelligence community. And then in AsiaPAC, you recently hired a field CTO focused on security in that region. So my question to you is how impactful are those investments and should we expect them to bear fruit this year?

Hey, Howard, good to hear from you and thank you for your support. So government, federal government, governments around the world are a definite area of focus. We went through the long journey of getting our technology FedRAMP high certified. And, you know, we're in a very rarefied space with that certification. most of our competitors don't even come close on the level of certification that we have. In addition, we're making our technology far easier to obtain and access by being on marketplaces like the AWS federal marketplace, government marketplace that we just announced. So, you know, from a safety level and, you know, that federal government agencies are looking for, we have it. Access, we're getting there. And we're also investing in specialized field resources, as you've observed with our field CTO community, that are deep, deep, deep, deeply rooted in security issues, cyber issues, and can take some of our capabilities from a compliance point of view and standards point of view to governments around the world. So it's an active area of investment for us, mostly on the product side, now a little bit on the go-to-market side. So that's kind of how we're thinking about it. Also on the channel, so Kerasoft, et cetera, that's the go-to-market side that we're enabling and making sure we're close with. On APAC, we are doing some modest growth there. Our focus has historically been Asia-Pacific, as it is A and Z. Australia, New Zealand, Singapore, Southeast Asia, and a little bit in mainland China. That's been our focus area. We're continuing to go deeper. There's a lot of opportunity there coming up, and we're investing there. But again, it's part of our plan, and it's part of everything we've shared as part of fiscal year 25.

Got it. Well, thank you for that added color. And I want to ask Danielle as well, is it I was trying to figure out the strength in subscription and SAS and specifically new term license, at least the way that we tried to back into it. And the question for you is that it makes me wonder, has your gross renewal rate, has that been picking up? And also, are you benefiting more from one-year subscription renewals this year? Thanks.

Yeah, thanks, Howard. Thanks for the question. Good morning. So the first thing I want to say, right, the This quarter, Q1, we saw very balanced contribution from all the items on our subscription line, right? So that's our software renewals, our software land expand opportunities, and our staff. When I think about term in particular, and I think I mentioned this in my prepared remarks, right, we actually saw 13% growth rate on our large deals, on our over $100,000 deals. And much of that was actually driven by volume, though. You mentioned our GRR rate. We are seeing our GRR rate strengthen, so we are seeing good signs, but I really want to highlight the fact that the success of the quarter really came from that balanced contribution of all those pieces in the subscription line.

Great. Thanks so much, Danielle.

Your next question comes from the line of James Fish with Piper Sander. Your line is open.

Hey, guys. Nice quarter there. Actually, I want to go back to last quarter a little bit where you guys had another good quarter, and actually that Dell announcement kind of went fairly unnoticed. Just any update on how that relationship has kind of gone out of the gate and sort of the ability to hit milestones from here?

Hey, Jim. It's Andre. How are you? So, you know, when we announced it, Sort of right around this time last quarter, we said it was a long-term sort of initiative for us to go after the install base, the Veritas install base, and partnering with Dell on their data domain install base. We're going to compete until the customer decides they want both of us. So that's how it's working. We're in situations where customers want us to come in, want us to do a proof of concept, want us to help them move. We're in the throes of it. And I never expected it to be a 60-, 90-day big hit. This is a ramp that is taking out an entrenched sort of install base that will take a little bit of time, and it's moving exactly the way we'd expect and want. So nothing yet, but more down the road, we will share more data down the road.

Yeah, makes sense. And Danielle, thanks for all the color and for jumping on the call here with us. But as we think about this fiscal Q2 guide, why the sequential drop on subscription, understanding the duration on term deals is getting closer and closer to two years. But if we look back three years ago, when deals were kind of being signed at three-year durations more so. It was, you know, better than down sequentially, and Metallic's been, you know, actually accelerating. So, I guess, is this just, you know, being prudently conservative, or is there something on the macro side that you guys are a little bit more cautious on?

Hi, Jim. Yeah, no, thanks for the question. So I wouldn't say we're being prudently conservative. I mean, you know, we raised our guidance going into Q2. And a lot of that, a lot of what you see is actually the momentum that we're seeing in staff, right? So there's a couple pieces that go into that subscription line I mentioned, right? the subscription renewals, which we're going into a slightly, we have a slightly smaller renewal pool in Q2, right? So we're factoring into that. But really, it goes back into the momentum and the capitalization of SaaS in that line, right? And obviously, SaaS is recognized radically. So we don't see the benefit of that, you know, in the following quarter, but instead over time. And I think you can really see that in the growth rate we're seeing in our SaaS ARR.

Makes sense. Thanks, guys. Thanks.

Again, if you would like to ask a question, press star 1 on your telephone keypad. Your next question comes from the line of Rudy Kessinger with DA Davidson. Your line is open.

Hey, guys. Thanks for taking my questions, and I'll add my congrats to the quarter. The new ARR figures especially look very, very impressive. I know it sounds like you're saying, Strengthening the quarter was kind of broad-based. I want to maybe narrow in on two issues. Firstly, cyber resilience. I believe I heard you say you're starting to monetize that. Could you just expand on that? How materially did that contribute in the quarter? Is there any color you can share just on the type of ASP uplift you're seeing in deals that include some of your cyber resilience products?

Yeah, thanks, Rudy, for the question. Good morning. Maybe I'll start and talk about the quarter, and then I'll hand it over to Sanjay to talk about what we're seeing in the broader market, right? So we had a material contribution from our cyber resiliency offerings this quarter, in particular, our cyber recovery and our autonomous recovery bundle. And actually, that traction that we saw this quarter is part of what gave us the confidence to raise the guidance for the rest of the year. Sanjay, you want to talk through?

Yeah, so really the way to think about our cyber resilience, it isn't one SKU. It's an overall platform with Compile Cloud that delivers services that are integrated. So in other words, a customer using our software, let's say our cyber resilience SKU, can avail of services that are delivered through the cloud through our SaaS-based capabilities like AirGap Protect or ThreatWatch. Okay, so it's an integrated play. And what we're seeing is that the uplift we're getting is that customers are actually looking at the platform in its entirety for that solution. And since we've released the autonomous and cyber resilience SKUs, which integrate these services, we've seen a marked uplift in the pipeline and to some level even in Q1 on the contribution. So that's the way to think about it.

Okay, got it. And I know Jim just asked about Dell, and it sounds like, you know, you found something on it.

It's work in progress. It's, you know, this is – You know, we are competitors. We are also collaborators. So it's a relationship that we're building out, and we're excited about it. I think the potential is massive, and the work is going on.

The teams are working. Well, I guess the broader question, I guess, is going to be just the pace of legacy displacement between Dell and obviously a couple others. Have you seen any increase in the pace of legacy displacement over the last couple quarters, or has it been kind of steady-state?

No, no, we have. We have. You know, whether it's ransomware or it's our resilience, you know, there is a marked focus by boards, by audit committees, by, you know, leadership teams inside companies to say, are we resilient? Do we have the best technology and the best capabilities to protect ourselves? And some of the legacy stuff is incomplete. And so there is a, you know, a big part of our pipeline is resilience. refresh of some of the install base.

That's helpful. Great. Thanks again.

That concludes our Q&A session. I will now turn the conference back over to Mike Melnick for closing remarks.

Thanks for everyone for joining us today. As a reminder, we have a presentation on the Investor Relations website. If you have any questions, feel free to reach out to me, and we look forward to seeing you at some upcoming conferences. Thanks very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.