Commvault 2Q23: Metallic SaaS Becoming Major Revenue Driver

‘Metallic is a logo acquisition machine that is complementary to our software business. We ended the quarter with over 2,500 Metallic customers. In Q2, 70 percent of Metallic customer additions were new to Commvault. Half of those have another Commvault product and one-third have multiple Metallic offerings, reinforcing that in today‘s world customers need both software and SaaS,’ says Commvault President and CEO Sanjay Mirchandani.

A robust growth in subscription revenue, particularly revenue related to its Metallic SaaS-based data protection technology, points to a bright future for Commvault.

Commvault Tuesday reported record second quarter revenue thanks to growth in subscriptions and SaaS sales, which combined grew by more that 40 percent over last year to account for 66 percent of its annual recurring revenue, said Sanjay Mirchandani, president and CEO of the Tinton Falls, N.J.-based company.

Mirchandani, during Commvault’s second fiscal quarter 2023 financial conference call, told financial analysts during his prepared remarks that the company’s fiscal strength shows its strategy is working in three ways.

[Related: Commvault CEO Sanjay Mirchandani: Subscription Model Has Spurred Stronger Partner Relationships]

First, Mirchandani said, Commvault has over the past three years been focused on transforming the business, and has returned the company to responsible growth. It is now focused on driving annual recurring revenue to over $600 million, he said.

Second, Mirchandani said, Commvault’s unified software and SaaS portfolio is a differentiator and a competitive advantage because customers want and need both.

“Metallic is a logo acquisition machine that is complementary to our software business,” he said. “We ended the quarter with over 2,500 Metallic customers. In Q2, 70 percent of Metallic customer additions were new to Commvault. Half of those have another Commvault product and one-third have multiple Metallic offerings, reinforcing that in today‘s world customers need both software and SaaS.”

Metallic SaaS offerings have surpassed $75 million in annual recurring revenue in under two years, making Metallic one of the fastest growing SaaS offerings in this industry, he said.

“It’s very clear that we’re outpacing benchmarks and reinforces that Metallic will be a big part of our future,” he said.

The third proof point that Commvault’s strategy is working is its go-to-market execution, Mirchandani said. Commvault’s investments in talent and operational excellence, combined with its partner ecosystem and a lot of smart work, has reinvigorated growth, improved efficiency, and reinforced its position as the top-ranked vendor in data center, cloud, and edge environments, he said.

“But we‘re not done,” he said. “In fact, I’m even more excited and confident of the opportunity in front of us because we offer elegant solutions to our customers‘ hard data problems in an increasingly difficult world. After all, our customers are relying on data to modernize and grow their businesses. Data is fluid, moving from on-prem to the edge to the cloud and back again, and it is remote, fragmented, and exposed to new threats every day.”

During the question and answer period whether the growth of Commvault’s Metallic line is bringing in new customers, Mirchandani said that about 50 percent of Metallic customer in the last quarter had other Commvault technology.

“And with ransomware, our premise is, less is more,” he said. “The less layers of technology, different technologies that you put in, the safer you can be because you have a single pane of glass and you have a singular way of dealing with it. And that‘s what we’re seeing. We‘re seeing our technology being pulled in to unify, to bring one layer of visibility and protection into customers. We see this every day. That’s how we win.”

When asked about the trajectory of Metallic subscriptions, Commvault Chief Financial officer said that the company exited the last fiscal year with well less than 2,000 Metallic customers, but now has well over 2,500 Metallic customers.

Mirchandani said the way Commvault wins in the market is by having a unified platform with both software and SaaS. He contrasted that with smaller point SaaS vendors who typically cannot handle enterprise workloads or ransomware like Commvault can.

“And if you look at the traditional software players, their architecture to extend into the cloud, into SaaS, leaves much to be desired for customers,” he said. “That‘s why we’ve been winning. And this has been our strategy now for two years, we‘ve said. It’s bringing the two together that‘s going to allow customers to make natural choices on their journey to the cloud, not unnatural choices. So in and of itself, Metallic is an incredibly powerful next-generation SaaS offering. Combined with software architecture, it’s pretty unbeatable.”

When CIOs or CEOs ask whether they should go with SaaS or software, Mirchandani said his response is that is the most unnatural choice one can make.

“Depending where you are in your journey, you need both,” he said. “And any provider that makes you choose unnaturally isn‘t doing you much of a service. So we go in with an architecture and customers can start with software, or start with SaaS, change back and forth, move workloads back and forth, change their minds, and our software and our SaaS offering allows them to do that transparently. And that’s why we win.”

For its second fiscal quarter 2023, which ended September 30, Commvault reported total revenue of $188.1 million, up about 6 percent from the $177.8 million the company reported for its second fiscal quarter 2022.

That included software and product revenue of $82.8 million, up from last year’s $75.3 million, and service revenue of $105.2 million, up from $102.6 million.

Total revenue for the quarter beat analyst predictions by $1.5 million, according to Seeking Alpha.

Net income on a GAAP basis for the quarter was $4.5 million or 10 cents per share, up significantly from the $1.7 million or 4 cents per share it reported last year. On a non-GAAP basis, net income was 26.1 million or 57 cents per share, up from last year’s $22.8 million or 48 cents per share.

Non-GAAP earnings per share beat analyst expectation b 7 cents per share.

Looking forward, Commvault expects to see an additional $4 million in foreign currency headwinds due to the growing strength of the U.S. dollar. As a result, the company expect total fiscal third quarter 2023 revenue to be in the range of $202 million to $205 million. At the midpoint of guidance, this represents 7 percent constant currency total revenue growth over last year.

Because of those exchange rates, the company also expects third fiscal quarter software revenue to be in the range of $97 million to $100 million, or up 7 percent year-over-year at the midpoint.