UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: December 31, 2022September 30, 2023
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 1-33026
Commvault Systems, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 22-3447504 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
1 Commvault Way
Tinton Falls, New Jersey 07724
(Address of principal executive offices, including zip code)
(732) 870-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | CVLT | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | x | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a)13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
As of January 27,October 30, 2023, there were 44,553,30543,792,454 shares of the registrant’s common stock, $0.01 par value, outstanding.
COMMVAULT SYSTEMS, INC.
FORM 10-Q
INDEX
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Part I – FINANCIAL INFORMATION |
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Commvault Systems, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
| | | December 31, 2022 | | March 31, 2022 | | September 30, 2023 | | March 31, 2023 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 273,469 | | | $ | 267,507 | | Cash and cash equivalents | | $ | 283,287 | | | $ | 287,778 | |
| Trade accounts receivable, net | Trade accounts receivable, net | | 215,464 | | | 194,238 | | Trade accounts receivable, net | | 196,434 | | | 210,441 | |
Assets held for sale | | Assets held for sale | | 38,680 | | | 38,680 | |
Other current assets | Other current assets | | 17,747 | | | 22,336 | | Other current assets | | 21,560 | | | 14,015 | |
Total current assets | Total current assets | | 506,680 | | | 484,081 | | Total current assets | | 539,961 | | | 550,914 | |
| Property and equipment, net | Property and equipment, net | | 100,901 | | | 106,513 | | Property and equipment, net | | 7,471 | | | 8,287 | |
Operating lease assets | Operating lease assets | | 11,211 | | | 14,921 | | Operating lease assets | | 12,995 | | | 11,784 | |
Deferred commissions cost | Deferred commissions cost | | 57,584 | | | 52,974 | | Deferred commissions cost | | 58,855 | | | 59,612 | |
Intangible asset, net | Intangible asset, net | | 2,604 | | | 3,542 | | Intangible asset, net | | 1,667 | | | 2,292 | |
Goodwill | Goodwill | | 127,780 | | | 127,780 | | Goodwill | | 127,780 | | | 127,780 | |
Other assets | Other assets | | 23,182 | | | 26,269 | | Other assets | | 23,963 | | | 21,905 | |
Total assets | Total assets | | $ | 829,942 | | | $ | 816,080 | | Total assets | | $ | 772,692 | | | $ | 782,574 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | | $ | 459 | | | $ | 432 | | Accounts payable | | $ | 136 | | | $ | 108 | |
Accrued liabilities | Accrued liabilities | | 104,078 | | | 121,837 | | Accrued liabilities | | 93,788 | | | 97,888 | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | | 4,031 | | | 4,778 | | Current portion of operating lease liabilities | | 4,848 | | | 4,518 | |
Deferred revenue | Deferred revenue | | 282,614 | | | 267,017 | | Deferred revenue | | 304,977 | | | 307,562 | |
Total current liabilities | Total current liabilities | | 391,182 | | | 394,064 | | Total current liabilities | | 403,749 | | | 410,076 | |
Deferred revenue, less current portion | Deferred revenue, less current portion | | 166,084 | | | 150,180 | | Deferred revenue, less current portion | | 174,061 | | | 174,393 | |
Deferred tax liabilities, net | Deferred tax liabilities, net | | 728 | | | 808 | | Deferred tax liabilities, net | | 495 | | | 134 | |
Long-term operating lease liabilities | Long-term operating lease liabilities | | 8,150 | | | 11,270 | | Long-term operating lease liabilities | | 9,194 | | | 8,260 | |
Other liabilities | Other liabilities | | 3,782 | | | 3,929 | | Other liabilities | | 3,670 | | | 3,613 | |
Commitments and contingencies (Note 5) | | |
Commitments and contingencies (Note 6) | | Commitments and contingencies (Note 6) | |
Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
Preferred stock, $0.01 par value: 50,000 shares authorized, no shares issued and outstanding | Preferred stock, $0.01 par value: 50,000 shares authorized, no shares issued and outstanding | | — | | | — | | Preferred stock, $0.01 par value: 50,000 shares authorized, no shares issued and outstanding | | — | | | — | |
Common stock, $0.01 par value: 250,000 shares authorized, 44,762 shares and 44,511 shares issued and outstanding at December 31, 2022 and March 31, 2022, respectively | | 446 | | | 443 | | |
Common stock, $0.01 par value: 250,000 shares authorized, 43,918 shares and 44,140 shares issued and outstanding at September 30, 2023 and March 31, 2023, respectively | | Common stock, $0.01 par value: 250,000 shares authorized, 43,918 shares and 44,140 shares issued and outstanding at September 30, 2023 and March 31, 2023, respectively | | 438 | | | 440 | |
Additional paid-in capital | Additional paid-in capital | | 1,242,697 | | | 1,165,948 | | Additional paid-in capital | | 1,307,027 | | | 1,264,608 | |
Accumulated deficit | Accumulated deficit | | (967,504) | | | (898,699) | | Accumulated deficit | | (1,108,738) | | | (1,062,900) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (15,623) | | | (11,863) | | Accumulated other comprehensive loss | | (17,204) | | | (16,050) | |
Total stockholders’ equity | Total stockholders’ equity | | 260,016 | | | 255,829 | | Total stockholders’ equity | | 181,523 | | | 186,098 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | | $ | 829,942 | | | $ | 816,080 | | Total liabilities and stockholders’ equity | | $ | 772,692 | | | $ | 782,574 | |
See accompanying unaudited notes to consolidated financial statements
Commvault Systems, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| | | | Three Months Ended December 31, | | Nine Months Ended December 31, | | | Three Months Ended September 30, | | Six Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
Revenues: | Revenues: | | | | | | | | | Revenues: | | | | | | | | |
Software and products | | $ | 89,589 | | | $ | 98,575 | | | $ | 264,850 | | | $ | 255,998 | | |
Services | | 105,485 | | | 103,806 | | | 316,262 | | | 307,644 | | |
Subscription | | Subscription | | $ | 97,757 | | | $ | 78,239 | | | $ | 195,047 | | | $ | 165,867 | |
Perpetual license | | Perpetual license | | 14,388 | | | 19,831 | | | 27,543 | | | 37,629 | |
Customer support | | Customer support | | 77,019 | | | 77,996 | | | 153,934 | | | 159,313 | |
Other services | | Other services | | 11,833 | | | 11,991 | | | 22,623 | | | 23,229 | |
Total revenues | Total revenues | | 195,074 | | | 202,381 | | | 581,112 | | | 563,642 | | Total revenues | | 200,997 | | | 188,057 | | | 399,147 | | | 386,038 | |
Cost of revenues: | Cost of revenues: | | Cost of revenues: | |
Software and products | | 3,122 | | | 4,271 | | | 10,308 | | | 9,471 | | |
Services | | 31,416 | | | 25,692 | | | 90,289 | | | 72,341 | | |
Subscription | | Subscription | | 14,643 | | | 8,893 | | | 27,006 | | | 19,878 | |
Perpetual license | | Perpetual license | | 642 | | | 656 | | | 1,054 | | | 1,282 | |
Customer support | | Customer support | | 14,898 | | | 15,423 | | | 29,855 | | | 30,456 | |
Other services | | Other services | | 7,670 | | | 7,330 | | | 15,488 | | | 14,443 | |
Total cost of revenues | Total cost of revenues | | 34,538 | | | 29,963 | | | 100,597 | | | 81,812 | | Total cost of revenues | | 37,853 | | | 32,302 | | | 73,403 | | | 66,059 | |
Gross margin | Gross margin | | 160,536 | | | 172,418 | | | 480,515 | | | 481,830 | | Gross margin | | 163,144 | | | 155,755 | | | 325,744 | | | 319,979 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Sales and marketing | Sales and marketing | | 87,343 | | | 89,217 | | | 253,561 | | | 248,506 | | Sales and marketing | | 84,712 | | | 81,299 | | | 168,839 | | | 166,218 | |
Research and development | Research and development | | 32,505 | | | 39,257 | | | 109,671 | | | 113,118 | | Research and development | | 31,261 | | | 37,053 | | | 62,692 | | | 77,166 | |
General and administrative | General and administrative | | 23,983 | | | 29,132 | | | 76,512 | | | 80,919 | | General and administrative | | 28,002 | | | 25,553 | | | 54,961 | | | 52,529 | |
Restructuring | Restructuring | | 9,228 | | | — | | | 11,360 | | | 2,082 | | Restructuring | | — | | | — | | | — | | | 2,132 | |
| Depreciation and amortization | Depreciation and amortization | | 2,459 | | | 2,451 | | | 7,631 | | | 7,084 | | Depreciation and amortization | | 1,535 | | | 2,537 | | | 3,138 | | | 5,172 | |
Total operating expenses | Total operating expenses | | 155,518 | | | 160,057 | | | 458,735 | | | 451,709 | | Total operating expenses | | 145,510 | | | 146,442 | | | 289,630 | | | 303,217 | |
Income from operations | Income from operations | | 5,018 | | | 12,361 | | | 21,780 | | | 30,121 | | Income from operations | | 17,634 | | | 9,313 | | | 36,114 | | | 16,762 | |
Interest income | Interest income | | 364 | | | 120 | | | 916 | | | 543 | | Interest income | | 1,369 | | | 291 | | | 2,149 | | | 552 | |
Interest expense | Interest expense | | (105) | | | (19) | | | (315) | | | (19) | | Interest expense | | (112) | | | (105) | | | (208) | | | (210) | |
Other income (expense), net | Other income (expense), net | | 123 | | | 564 | | | (112) | | | 564 | | Other income (expense), net | | (154) | | | 154 | | | 187 | | | (235) | |
Income before income taxes | Income before income taxes | | 5,400 | | | 13,026 | | | 22,269 | | | 31,209 | | Income before income taxes | | 18,737 | | | 9,653 | | | 38,242 | | | 16,869 | |
Income tax expense | Income tax expense | | 5,710 | | | 3,018 | | | 14,550 | | | 5,573 | | Income tax expense | | 5,720 | | | 5,135 | | | 12,596 | | | 8,840 | |
Net income (loss) | | $ | (310) | | | $ | 10,008 | | | $ | 7,719 | | | $ | 25,636 | | |
Net income (loss) per common share: | | | | | | | | | |
Net income | | Net income | | $ | 13,017 | | | $ | 4,518 | | | $ | 25,646 | | | $ | 8,029 | |
Net income per common share: | | Net income per common share: | | | | | | | | |
Basic | Basic | | $ | (0.01) | | | $ | 0.22 | | | $ | 0.17 | | | $ | 0.56 | | Basic | | $ | 0.30 | | | $ | 0.10 | | | $ | 0.58 | | | $ | 0.18 | |
Diluted | Diluted | | $ | (0.01) | | | $ | 0.21 | | | $ | 0.17 | | | $ | 0.54 | | Diluted | | $ | 0.29 | | | $ | 0.10 | | | $ | 0.57 | | | $ | 0.18 | |
Weighted average common shares outstanding: | Weighted average common shares outstanding: | | | | | | | | | Weighted average common shares outstanding: | | | | | | | | |
Basic | Basic | | 44,712 | | | 45,242 | | | 44,738 | | | 45,720 | | Basic | | 43,949 | | | 44,759 | | | 44,003 | | | 44,751 | |
Diluted | Diluted | | 44,712 | | | 46,719 | | | 45,810 | | | 47,552 | | Diluted | | 44,903 | | | 45,540 | | | 45,010 | | | 45,745 | |
See accompanying unaudited notes to consolidated financial statements
Commvault Systems, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | Nine Months Ended December 31, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) | | $ | (310) | | | $ | 10,008 | | | $ | 7,719 | | | $ | 25,636 | |
Other comprehensive income (loss): | | | | | | | | |
Foreign currency translation adjustment | | (171) | | | 36 | | | (3,760) | | | (1,277) | |
Comprehensive income (loss) | | $ | (481) | | | $ | 10,044 | | | $ | 3,959 | | | $ | 24,359 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Six Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Net income | | $ | 13,017 | | | $ | 4,518 | | | $ | 25,646 | | | $ | 8,029 | |
Other comprehensive loss: | | | | | | | | |
Foreign currency translation adjustment | | (792) | | | (1,874) | | | (1,154) | | | (3,589) | |
Comprehensive income | | $ | 12,225 | | | $ | 2,644 | | | $ | 24,492 | | | $ | 4,440 | |
See accompanying unaudited notes to consolidated financial statements
Commvault Systems, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
| | | | Common Stock | | Additional Paid – In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total | | | Common Stock | | Additional Paid – In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total |
| | | Shares | | Amount | | | | Shares | | Amount | |
Balance as of September 30, 2022 | | 44,597 | | | $ | 444 | | | $ | 1,220,667 | | | $ | (940,396) | | | $ | (15,452) | | | $ | 265,263 | | |
Balance as of June 30, 2023 | | Balance as of June 30, 2023 | | 43,973 | | | $ | 438 | | | $ | 1,282,326 | | | $ | (1,094,336) | | | $ | (16,412) | | | $ | 172,016 | |
Stock-based compensation | Stock-based compensation | | 24,645 | | | 24,645 | | Stock-based compensation | | 23,615 | | | 23,615 | |
Share issuances related to stock-based compensation | Share issuances related to stock-based compensation | | 672 | | | 7 | | | 1,926 | | | 1,933 | | Share issuances related to stock-based compensation | | 387 | | | 4 | | | 5,163 | | | 5,167 | |
Repurchase of common stock | Repurchase of common stock | | (507) | | | (5) | | | (4,541) | | | (26,798) | | | (31,344) | | Repurchase of common stock | | (442) | | | (4) | | | (4,077) | | | (27,419) | | | (31,500) | |
Net loss | | (310) | | | (310) | | |
Net income | | Net income | | 13,017 | | | 13,017 | |
Other comprehensive loss | Other comprehensive loss | | (171) | | | (171) | | Other comprehensive loss | | (792) | | | (792) | |
Balance as of December 31, 2022 | | 44,762 | | | $ | 446 | | | $ | 1,242,697 | | | $ | (967,504) | | | $ | (15,623) | | | $ | 260,016 | | |
Balance as of September 30, 2023 | | Balance as of September 30, 2023 | | 43,918 | | | $ | 438 | | | $ | 1,307,027 | | | $ | (1,108,738) | | | $ | (17,204) | | | $ | 181,523 | |
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| | | | | | | | | | | | |
| | Common Stock | | Additional Paid – In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total |
| | Shares | | Amount | | | | |
Balance as of March 31, 2022 | | 44,511 | | | $ | 443 | | | $ | 1,165,948 | | | $ | (898,699) | | | $ | (11,863) | | | $ | 255,829 | |
Stock-based compensation | | | | | | 81,067 | | | | | | | 81,067 | |
Share issuances related to stock-based compensation | | 1,771 | | | 18 | | | 9,274 | | | | | | | 9,292 | |
Repurchase of common stock | | (1,520) | | | (15) | | | (13,592) | | | (76,524) | | | | | (90,131) | |
Net income | | | | | | | | 7,719 | | | | | 7,719 | |
Other comprehensive loss | | | | | | | | | | (3,760) | | | (3,760) | |
Balance as of December 31, 2022 | | 44,762 | | | $ | 446 | | | $ | 1,242,697 | | | $ | (967,504) | | | $ | (15,623) | | | $ | 260,016 | |
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| | Common Stock | | Additional Paid – In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total |
| | Shares | | Amount | | | | |
Balance as of March 31, 2023 | | 44,140 | | | $ | 440 | | | $ | 1,264,608 | | | $ | (1,062,900) | | | $ | (16,050) | | | $ | 186,098 | |
Stock-based compensation | | | | | | 47,339 | | | | | | | 47,339 | |
Share issuances related to stock-based compensation | | 999 | | | 10 | | | 6,358 | | | | | | | 6,368 | |
Repurchase of common stock | | (1,221) | | | (12) | | | (11,278) | | | (71,484) | | | | | (82,774) | |
Net income | | | | | | | | 25,646 | | | | | 25,646 | |
Other comprehensive loss | | | | | | | | | | (1,154) | | | (1,154) | |
Balance as of September 30, 2023 | | 43,918 | | | $ | 438 | | | $ | 1,307,027 | | | $ | (1,108,738) | | | $ | (17,204) | | | $ | 181,523 | |
Commvault Systems, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
| | | | Common Stock | | Additional Paid – In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total | | | Common Stock | | Additional Paid – In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total |
| | | Shares | | Amount | | | | Shares | | Amount | |
Balance as of September 30, 2021 | | 45,374 | | | $ | 452 | | | $ | 1,119,738 | | | $ | (808,749) | | | $ | (11,663) | | | $ | 299,778 | | |
Balance as of June 30, 2022 | | Balance as of June 30, 2022 | | 44,835 | | | $ | 446 | | | $ | 1,194,931 | | | $ | (911,315) | | | $ | (13,578) | | | $ | 270,484 | |
Stock-based compensation | Stock-based compensation | | 28,533 | | | 28,533 | | Stock-based compensation | | 25,327 | | | 25,327 | |
| Share issuances related to stock-based compensation | Share issuances related to stock-based compensation | | 606 | | | 6 | | | 421 | | | 427 | | Share issuances related to stock-based compensation | | 465 | | | 5 | | | 6,667 | | | 6,672 | |
Repurchase of common stock | Repurchase of common stock | | (1,298) | | | (13) | | | (11,793) | | | (73,516) | | | (85,322) | | Repurchase of common stock | | (703) | | | (7) | | | (6,258) | | | (33,599) | | | (39,864) | |
Net income | Net income | | 10,008 | | | 10,008 | | Net income | | 4,518 | | | 4,518 | |
Other comprehensive income | | 36 | | | 36 | | |
Balance as of December 31, 2021 | | 44,682 | | | $ | 445 | | | $ | 1,136,899 | | | $ | (872,257) | | | $ | (11,627) | | | $ | 253,460 | | |
Other comprehensive loss | | Other comprehensive loss | | (1,874) | | | (1,874) | |
Balance as of September 30, 2022 | | Balance as of September 30, 2022 | | 44,597 | | | $ | 444 | | | $ | 1,220,667 | | | $ | (940,396) | | | $ | (15,452) | | | $ | 265,263 | |
| | | | Common Stock | | Additional Paid – In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total | | Common Stock | | Additional Paid – In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total |
| | Shares | | Amount | | | Shares | | Amount | |
Balance as of March 31, 2021 | | 46,482 | | | $ | 463 | | | $ | 1,069,695 | | | $ | (665,774) | | | $ | (10,350) | | | $ | 394,034 | | |
Balance as of March 31, 2022 | | Balance as of March 31, 2022 | | 44,511 | | | $ | 443 | | | $ | 1,165,948 | | | $ | (898,699) | | | $ | (11,863) | | | $ | 255,829 | |
Stock-based compensation | Stock-based compensation | | 76,793 | | | | | 76,793 | | Stock-based compensation | | 56,422 | | | 56,422 | |
| Share issuances related to stock-based compensation | Share issuances related to stock-based compensation | | 1,906 | | | 19 | | | 23,669 | | | 23,688 | | Share issuances related to stock-based compensation | | 1,099 | | | 11 | | | 7,348 | | | 7,359 | |
Repurchase of common stock | Repurchase of common stock | | (3,706) | | | (37) | | | (33,258) | | | (232,119) | | | (265,414) | | Repurchase of common stock | | (1,013) | | | (10) | | | (9,051) | | | (49,726) | | | (58,787) | |
Net income | Net income | | 25,636 | | | 25,636 | | Net income | | 8,029 | | | 8,029 | |
Other comprehensive loss | Other comprehensive loss | | (1,277) | | | (1,277) | | Other comprehensive loss | | (3,589) | | | (3,589) | |
Balance as of December 31, 2021 | | 44,682 | | | $ | 445 | | | $ | 1,136,899 | | | $ | (872,257) | | | $ | (11,627) | | | $ | 253,460 | | |
Balance as of September 30, 2022 | | Balance as of September 30, 2022 | | 44,597 | | | $ | 444 | | | $ | 1,220,667 | | | $ | (940,396) | | | $ | (15,452) | | | $ | 265,263 | |
See accompanying unaudited notes to consolidated financial statements
Commvault Systems, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| | | Nine Months Ended December 31, | | Six Months Ended September 30, |
| | | 2022 | | 2021 | | | 2023 | | 2022 |
Cash flows from operating activities | Cash flows from operating activities | | | | | Cash flows from operating activities | | | | |
Net income | Net income | | $ | 7,719 | | | $ | 25,636 | | Net income | | $ | 25,646 | | | $ | 8,029 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | | 8,656 | | | 8,027 | | Depreciation and amortization | | 3,196 | | | 5,855 | |
Noncash stock-based compensation | Noncash stock-based compensation | | 81,067 | | | 76,793 | | Noncash stock-based compensation | | 47,339 | | | 56,422 | |
Noncash change in fair value of equity securities | Noncash change in fair value of equity securities | | 112 | | | 436 | | Noncash change in fair value of equity securities | | (187) | | | 234 | |
| Amortization of deferred commissions cost | Amortization of deferred commissions cost | | 16,533 | | | 13,344 | | Amortization of deferred commissions cost | | 12,749 | | | 10,756 | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Trade accounts receivable | Trade accounts receivable | | (17,779) | | | (25,546) | | Trade accounts receivable | | 8,245 | | | 15,863 | |
Operating lease assets and liabilities, net | Operating lease assets and liabilities, net | | (61) | | | (809) | | Operating lease assets and liabilities, net | | 65 | | | (181) | |
Other current assets and Other assets | Other current assets and Other assets | | 2,982 | | | (2,172) | | Other current assets and Other assets | | (3,832) | | | (461) | |
Deferred commissions cost | Deferred commissions cost | | (22,663) | | | (21,852) | | Deferred commissions cost | | (12,561) | | | (13,017) | |
Accounts payable | Accounts payable | | 49 | | | (120) | | Accounts payable | | 32 | | | (213) | |
Accrued liabilities | Accrued liabilities | | (17,103) | | | (3,293) | | Accrued liabilities | | (3,963) | | | (28,604) | |
Deferred revenue | Deferred revenue | | 41,807 | | | 19,564 | | Deferred revenue | | 1,746 | | | 16,464 | |
Other liabilities | Other liabilities | | 1,136 | | | 56 | | Other liabilities | | 899 | | | 1,130 | |
Net cash provided by operating activities | Net cash provided by operating activities | | 102,455 | | | 90,064 | | Net cash provided by operating activities | | 79,374 | | | 72,277 | |
Cash flows from investing activities | Cash flows from investing activities | | Cash flows from investing activities | |
| Purchase of property and equipment | Purchase of property and equipment | | (2,186) | | | (3,328) | | Purchase of property and equipment | | (1,413) | | | (1,381) | |
Purchase of equity securities | Purchase of equity securities | | (1,961) | | | (3,527) | | Purchase of equity securities | | (572) | | | (1,793) | |
Other | | — | | | 500 | | |
| Net cash used in investing activities | Net cash used in investing activities | | (4,147) | | | (6,355) | | Net cash used in investing activities | | (1,985) | | | (3,174) | |
Cash flows from financing activities | Cash flows from financing activities | | Cash flows from financing activities | |
Repurchase of common stock | Repurchase of common stock | | (90,131) | | | (265,414) | | Repurchase of common stock | | (82,357) | | | (58,787) | |
Proceeds from stock-based compensation plans | Proceeds from stock-based compensation plans | | 9,292 | | | 23,688 | | Proceeds from stock-based compensation plans | | 6,368 | | | 7,359 | |
Payment of debt issuance costs | Payment of debt issuance costs | | (63) | | | (609) | | Payment of debt issuance costs | | — | | | (63) | |
| Net cash used in financing activities | Net cash used in financing activities | | (80,902) | | | (242,335) | | Net cash used in financing activities | | (75,989) | | | (51,491) | |
Effects of exchange rate — changes in cash | Effects of exchange rate — changes in cash | | (11,444) | | | (4,920) | | Effects of exchange rate — changes in cash | | (5,891) | | | (22,634) | |
Net increase (decrease) in cash and cash equivalents | | 5,962 | | | (163,546) | | |
Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | | (4,491) | | | (5,022) | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | 267,507 | | | 397,237 | | Cash and cash equivalents at beginning of period | | 287,778 | | | 267,507 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 273,469 | | | $ | 233,691 | | Cash and cash equivalents at end of period | | $ | 283,287 | | | $ | 262,485 | |
|
See accompanying unaudited notes to consolidated financial statements
Commvault Systems, IncInc.
Notes to Consolidated Financial Statements - Unaudited
(In thousands, except per share data)
1. Basis of Presentation
Commvault Systems, Inc. and its subsidiaries ("Commvault," "we," "us," or "our") is a provider of data protection and information management software applications and products. We develop, market and sell a suite of software applications and services, globally, that provides our customers with data protection solutions. We also provide ourits customers with a broad range of professionaldata protection platform that helps them secure, defend and customer supportrecover their most precious asset, their data. We provide these products and services including as-a-service, branded as Metallic.for their data across the following environments: on-premises, hybrid, or multi-cloud. Our data protection offerings are delivered via self-managed software, software-as-a-service (SaaS), integrated appliances, or managed by partners. Customers use our technology to protect themselves from threats like ransomware and recover their data efficiently.
The consolidated financial statements of Commvault as of December 31, 2022September 30, 2023 and for the three and ninesix months ended December 31,September 30, 2023 and 2022 and 2021 are unaudited, and in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the financial statements and notes in our Annual Report on Form 10-K for fiscal 2022.2023. The results reported in these financial statements should not necessarily be taken as indicative of results that may be expected for the entire fiscal year.
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments and estimates that affect the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The amounts of assets and liabilities reported in our balance sheets and the amounts of revenues and expenses reported for each of our periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, income taxes and related reserves, deferred commissions purchased intangible assets and goodwill. Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Reclassification of Prior Year Balances
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications have no impact on the amount of total revenues or net income. Beginning in fiscal 2024, the software and services line items on the consolidated statements of operations, related to revenues and cost of revenues, will be presented in the following categories:
Subscription - The amounts on this line include the revenues and costs of recurring time-based arrangements, including the software portion of term-based licenses and SaaS offerings. The software component of term-based licenses is typically recognized when the software is delivered or made available for download. For SaaS offerings, revenue is generally recognized ratably over the contract term beginning on the date that the service is made available to the customer.
Perpetual license - The amounts on this line include the revenues and costs from the sale of perpetual software licenses. Perpetual software license revenue is typically recognized when the software is delivered or made available for download.
Customer support - The amounts on this line include customer support revenues and costs associated with our software products. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support, and other premium support offerings, for both subscription software and perpetual software license arrangements. Customer support revenue is typically recognized ratably over the term of the customer support agreement.
Commvault Systems, Inc.
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)
Other services - The amounts included on this line consist primarily of revenues and costs related to professional service offerings, including consultation, assessment and design, installation services, and customer education. Revenues related to other professional services are typically recognized as the services are performed.
Recently Adopted and Recently Issued Accounting Standards
There were no recently adopted accounting standards that had a material effect on our condensed consolidated financial statements and accompanying disclosures, and no recently issued accounting standards that are expected to have a material impact on our condensed consolidated financial statements and accompanying disclosures.
Concentration of Credit Risk
We grant credit to customers in a wide variety of industries worldwide and generally do not require collateral. CreditHistorically, credit losses relating to these customers have been minimal.
Sales through our distribution agreement with Arrow Enterprise Computing Solutions, Inc. (“Arrow”) totaled 38%35% and 36% of total revenues for both the three months ended December 31,September 30, 2023 and 2022, and 2021, and 37%respectively, and 36% for both the ninesix months ended December 31, 2022September 30, 2023 and 2021, respectively.2022. Arrow accounted for approximately 32%25% and 30%34% of total accounts receivable as of December 31, 2022September 30, 2023 and March 31, 2022,2023, respectively.
Hitachi Vantara ("Hitachi"), one ofSales through our original equipment manufacturers, accounted for 11%distribution agreement with Carahsoft Technology Corp. resulted in approximately 15% of total accounts receivable as of December 31, 2022.September 30, 2023.
Fair Value of Financial Instruments
The carrying amounts of our cash, cash equivalents, accounts receivable and accounts payable approximate their fair values due to the short-term maturity of these instruments. Our cash equivalents balance consists primarily of U.S. Treasury Bills with maturities of one month or less.
The following table summarizes the composition of our financial assets measured at fair value at September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents | $ | 24,903 | | | — | | | — | | | $ | 24,903 | |
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)
September 30, 2022.Equity Securities Accounted for at Net Asset Value
We held equity interests in private equity funds of $5,995$6,659 as of December 31, 2022,September 30, 2023, which are accounted for under the net asset value practical expedient as permitted under ASC 820, Fair Value Measurement. These investments are included in Otherother assets in the accompanying consolidated balance sheets. The net asset values of these investments are determined using quarterly capital statements from the funds, which are based on our contributions to the funds, allocation of profit and loss and changes in fair value of the underlying fund investments. Changes in fair value as reported on the capital statements are recorded through the consolidated statements of operations as non-operating income or expense. These private equity funds focus on making investments in key technology sectors, principally by investing in companies at expansion capital and growth equity stages. We had total unfunded commitments in private equity funds of $4,334$3,501 as of December 31, 2022.
September 30, 2023.
Deferred Commissions Cost
Sales commissions, bonuses, and related payroll taxes earned by our employees are considered incremental and recoverable costs of obtaining a contract with a customer. Our typical contracts include performance obligations related to term-based software licenses, SaaS offerings, perpetual software licenses, software updates, and customer support and other services, including as-a-service offerings.support. In these contracts, incremental costs of obtaining a contract are allocated to the performance obligations based on the relative estimated standalone selling prices and then recognized on a systematic basis that is consistent with the transfer of the goods or services to which the asset relates. We do not pay commissions on annual renewals of contracts for software updates and customer support contracts for perpetual licenses. The costs allocated to software and products are expensed at the time of sale, when revenue for the functional software license or
Commvault Systems, Inc.
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)
appliance is recognized. The costs allocated to software updates and customer support for perpetual licenses are amortized ratably over a period of approximately five years, the expected period of benefit of the asset capitalized. We currently estimate a period of five years is appropriate based on consideration of historical average customer life and the estimated useful life of the underlying software sold as part of the transaction. The commission paid on the renewal of a term-based or subscription software licensearrangements is not commensurate with the commission paid on the initial purchase. As a result, the cost of commissions allocated to as-a-service subscription offerings, software updates and customer support on the initial term-based software license transactions are amortized over a period of approximately five years, consistent with the accounting for these costs associated with perpetual licenses. The costs of commissions allocated to as-a-service offerings, software updates and support for the renewal of term-based software licenses is limited to the contractual period of the arrangement, as we pay a commensurate renewal commission upon the next renewal of the subscription software license and related updates and support.
The incremental costs relatedattributable to professional services are generally amortized over the period the related professional services are provided and revenue is recognized. Amortization expense related to these costs is included in sales and marketing expenses in the accompanying consolidated statements of operations.
3. Revenue
We derive revenues from two primary sources:various sources, including subscriptions, perpetual software licenses, customer support contracts and other services.
Subscription
Subscription includes the revenues derived from time-based arrangements, including the software portion of term-based licenses and SaaS offerings. The software component of term-based licenses is typically recognized when the software is delivered or made available for download. The term of our subscription arrangements is typically one to three years, but can range between one and five years. For SaaS offerings, revenue is generally recognized ratably over the contract term beginning on the date that the service is made available to the customer.
Perpetual License
Perpetual license includes the revenues from the sale of perpetual software licenses. Perpetual software license revenue is typically recognized when the software is delivered or made available for download.
Customer Support
Customer support includes revenues associated with support contracts tied to our software products. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support, and other premium support offerings, for both subscription software and products, and services. Software and products revenue includesperpetual software license arrangements. We sell our software and integrated appliances that combine our software with hardware. Services include customer support (software updatescontracts as a percentage of net software purchases. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year on our perpetual licenses and technical support), consulting,over the term on our term-based licenses.
Other Services
Other services consist primarily of revenues related to professional service offerings, including consultation, assessment and design, services, installation services, and customer education and as-a-service, which is brandededucation. Revenues related to other professional services are typically recognized as Metallic.the services are performed.
We sell both perpetual and term-based licenses of our software. We refer to our term-based software licenses as subscription arrangements. We do not customize our software licenses (both perpetual and term-based) and installation services are not required. The software isSoftware licenses are delivered before related services are provided and isare functional without professional services, updates and technical support. We have concluded that our software licenses (both perpetual and subscription)term-based) are functional intellectual property that is distinct, as the user can benefit from the software on its own. Software revenueRevenues for both perpetual and subscriptionterm-based licenses isare typically recognized when the software is delivered and/or made available for download as this is the point the user of the software can direct the use of, and obtain substantially all of the remaining benefits from the functional intellectual property. We do not recognize softwaresubscription revenue related to the renewal of that subscription software licenses earlier than the beginning of the new subscription period.
Commvault Systems, Inc.
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)
We also selloffer appliances that integrate our software with hardware and address a wide-range of business needs and use cases, ranging from support for remote or branch offices with limited IT staff up to large corporate
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)
data centers. Revenue related toOur appliances is recognized when control of the appliances passes to the customer; typically upon delivery. In the second half of fiscal 2021 we began transitioning toare almost exclusively sold via a software only model in which we typically sell software to a third party, which assembles an integrated appliance that is sold to end user customers. As a result, the revenuerevenues and costs associated with hardware have declined from recent fiscal years.
Services revenue includes revenue from customer support and other professional services. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. We sellare usually not included in our customer support contracts as a percentage of net software purchases the support is related to. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year on our perpetual licenses. The term of our subscription arrangements is typically three years but can range between one and five years.
Our other professional services include consulting, assessment and design services, installation services and customer education. Customer education services include courses taught by our instructors or third-party contractors. Revenue related to other professional services and customer education services is typically recognized as the services are performed.
Commvault as-a-service, which is branded as Metallic, allows customers to use hosted software over the contract period without taking possession of the software. Revenue related to Metallic is generally recognized ratably over the contract term as services revenue.
Most of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software are typically estimated using the residual approach. Standalone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis.
financial statements.
Our typical performance obligations include the following:
| | | | | | | | | | | |
Performance Obligation | When Performance Obligation is Typically Satisfied | When Payment is Typically Due | How Standalone Selling Price is Typically Estimated |
Software and Products RevenueSubscription |
Software LicensesTerm-based software licenses | Upon shipment or made available for download (point in time) | Within 90 days of shipment except for certain subscription licenses which are paid for over time | Residual approach |
Software-as-a-service (SaaS) | Ratably over the course of the contract (over time) | Annually or at the beginning of the contract period | Observable in transactions without multiple performance obligations |
Perpetual License |
Perpetual software licenses | Upon shipment or made available for download (point in time) | Within 90 days of shipment | Residual approach |
Customer Support Revenue |
Software Updatesupdates | Ratably over the course of the support contract (over time) | At the beginning of the contract period | Observable in renewal transactions |
Customer Supportsupport | Ratably over the course of the support contract (over time) | At the beginning of the contract period | Observable in renewal transactions |
Other Services Revenue |
Other Professional Servicesprofessional services (except for education services) | As work is performed (over time) | Within 90 days of services being performed | Observable in transactions without multiple performance obligations |
Education Servicesservices | When the class is taught (point in time) | Within 90 days of services being performed | Observable in transactions without multiple performance obligations |
As-a-service (Metallic) |
Judgments related to revenue recognition
Most of our contracts contain multiple performance obligations. For these contracts, we evaluate and account for individual performance obligations separately if they are determined to be distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software licenses (both perpetual and term-based) are typically estimated using the residual approach. Standalone selling prices for SaaS, customer support contracts, and other services are typically estimated based on observable transactions when these services are sold on a standalone basis. We recognize revenue net of sales tax.
Ratably over the course of the contract (over time) | Annual or monthly payments | Observable in transactions without multiple performance obligations |
Commvault Systems, IncInc.
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)
Disaggregation of RevenueRevenues
We disaggregate revenuerevenues from contracts with customers into the nature of the products and services and geographical regions. During the fourth quarter of fiscal 2022, we combined the management of our EMEA and APJ field organizations into our International region (Europe, Middle East, Africa, Australia, India, Japan, Southeast Asia, China). Our Americas region includes the United States, Canada, and Latin America. Our International region primarily includes Europe, Middle East, Africa, Australia, India, Southeast Asia, and China.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2022 | | Nine Months Ended December 31, 2022 |
| Americas | International | Total | | Americas | International | Total |
Software and Products Revenue | $ | 46,020 | | $ | 43,569 | | $ | 89,589 | | | $ | 158,863 | | $ | 105,987 | | $ | 264,850 | |
Customer Support Revenue | 45,709 | | 31,956 | | 77,665 | | | 139,713 | | 97,265 | | 236,978 | |
Other Services Revenue | 16,378 | | 11,442 | | 27,820 | | | 48,331 | | 30,953 | | 79,284 | |
Total Revenue | $ | 108,107 | | $ | 86,967 | | $ | 195,074 | | | $ | 346,907 | | $ | 234,205 | | $ | 581,112 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Six Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Americas | $ | 120,300 | | | $ | 116,191 | | | $ | 242,424 | | | $ | 238,800 | |
International | 80,697 | | | 71,866 | | | 156,723 | | | 147,238 | |
Total revenues | $ | 200,997 | | | $ | 188,057 | | | $ | 399,147 | | | $ | 386,038 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2021 | | Nine Months Ended December 31, 2021 |
| Americas | International | Total | | Americas | International | Total |
Software and Products Revenue | $ | 57,538 | | $ | 41,037 | | $ | 98,575 | | | $ | 153,510 | | $ | 102,488 | | $ | 255,998 | |
Customer Support Revenue | 50,163 | | 35,844 | | 86,007 | | | 153,244 | | 109,185 | | 262,429 | |
Other Services Revenue | 10,620 | | 7,179 | | 17,799 | | | 27,323 | | 17,892 | | 45,215 | |
Total Revenue | $ | 118,321 | | $ | 84,060 | | $ | 202,381 | | | $ | 334,077 | | $ | 229,565 | | $ | 563,642 | |
Remaining Performance Obligations
Remaining performance obligations represent expected future revenues from existing contracts where performance obligations are unsatisfied or partially unsatisfied at the end of the reporting period. As of September 30, 2023, our remaining performance obligations (inclusive of deferred revenues) were $547,762 of which approximately 64% is expected to be recognized as revenue over the next 12 months and the remainder recognized thereafter. The vast majority of these revenues consist of customer support, other services and SaaS arrangements. Other services consists primarily of professional services revenue which is contingent upon a number of factors, including customers' needs and scheduling. The amount of revenue recognized in the period that was included in the opening deferred revenue balance was $85,420 and $193,365 for the three and six months ended September 30, 2023, respectively. The amount of revenue recognized from performance obligations satisfied in prior periods was not significant.
Information about Contract Balances
Amounts collected in advance of services being provided are accounted for as deferred revenue. Nearly all of our deferred revenue balance is related to services revenue.customer support, SaaS arrangements, and other services.
In some arrangements we allow customers to pay for term-based software licenses and products over the term of the software license. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables, which are anticipated to be invoiced in the next twelve months, are included in accounts receivable on the consolidated balance sheets. Long-term unbilled receivables are included in other assets. The opening and closing balances of our accounts receivable, unbilled receivables, and deferred revenues are as follows:
| | | | | | | | | | | | | | | | | |
| Accounts Receivable | Unbilled Receivable (current) | Unbilled Receivable (long-term) | Deferred Revenue (current) | Deferred Revenue (long-term) |
Opening Balance as of March 31, 2022 | $ | 177,182 | | $ | 17,056 | | $ | 14,296 | | $ | 267,017 | | $ | 150,180 | |
Increase (decrease), net | 17,880 | | 3,346 | | (3,531) | | 15,597 | | 15,904 | |
Ending Balance as of December 31, 2022 | $ | 195,062 | | $ | 20,402 | | $ | 10,765 | | $ | 282,614 | | $ | 166,084 | |
| | | | | | | | | | | | | | | | | |
| Accounts receivable | Unbilled receivable (current) | Unbilled receivable (long-term) | Deferred revenue (current) | Deferred revenue (long-term) |
Opening balance as of March 31, 2023 | $ | 188,736 | | $ | 21,705 | | $ | 9,867 | | $ | 307,562 | | $ | 174,393 | |
Increase (decrease), net | (17,607) | | 3,600 | | 1,954 | | (2,585) | | (332) | |
Ending balance as of September 30, 2023 | $ | 171,129 | | $ | 25,305 | | $ | 11,821 | | $ | 304,977 | | $ | 174,061 | |
The increasesnet decrease in accounts receivable (inclusive of unbilled receivables) and deferred revenue areis a result of a decrease in revenues relative to the fourth quarter of the prior fiscal year. The decrease in deferred revenue is primarily the result of the decrease in customer support contract billings, partially offset by an increase in MetallicSaaS contracts which are billed upfront but recognized ratably over the contract period.
The amount of revenue recognized in the period that was included in the March 31, 2022 balance of deferred revenue was $59,080 and $224,543 for the three and nine months ended December 31, 2022, respectively. The majority of this revenue consists of customer support arrangements and Metallic. The amount of software and products revenue recognized in the three and nine months ended December 31, 2022 related to performance obligations from prior periods was not significant.
Commvault Systems, IncInc.
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)
Remaining Performance Obligations4. Assets Held for Sale
In additionDuring the fourth quarter of fiscal 2023, we entered into an agreement to sell our owned corporate headquarters in Tinton Falls, New Jersey for $40,000 in cash consideration and determined the amounts included in deferred revenue as of December 31, 2022, $83,322 of revenue may be recognized from remaining performance obligations, of which $9,614 wasassets and land related to softwareheadquarters met the criteria for classification as assets held for sale in accordance with ASC 360, Impairment and products. We expectDisposal of Long-Lived Assets. The property's estimated fair value, less estimated costs to sell, is $38,680. The sale is expected to close in the majoritythird quarter of this software and products revenue to be recognized during the next twelve months. The majority of this software and products revenue is associated with renewals of subscription licenses which have not yet expired. The majorityfiscal 2024. Upon closing of the services revenue is related to professional services and Metallic contracts that are committed but billed annually.
transaction, we will enter into a lease for a portion of the premises.
4.5. Net Income (Loss) per Common Share
Basic net income per common share is computed by dividing net income by the weighted average number of common shares during the period. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the vesting of restricted stock units, shares to be purchased under the Employee Stock Purchase Plan ("ESPP"), and the exercise of stock options. The dilutive effect of such potential common shares is reflected in diluted earnings per share by application of the treasury stock method.
The following table sets forth the reconciliation of basic and diluted net income per common share:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | Nine Months Ended December 31, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) | | $ | (310) | | | $ | 10,008 | | | $ | 7,719 | | | $ | 25,636 | |
Basic net income (loss) per common share: | | | | | | | | |
Basic weighted average shares outstanding | | 44,712 | | | 45,242 | | | 44,738 | | | 45,720 | |
Basic net income (loss) per common share | | $ | (0.01) | | | $ | 0.22 | | | $ | 0.17 | | | $ | 0.56 | |
Diluted net income (loss) per common share: | | | | | | | | |
Basic weighted average shares outstanding | | 44,712 | | | 45,242 | | | 44,738 | | | 45,720 | |
Dilutive effect of stock options and restricted stock units | | — | | | 1,477 | | | 1,072 | | | 1,832 | |
Diluted weighted average shares outstanding | | 44,712 | | | 46,719 | | | 45,810 | | | 47,552 | |
Diluted net income (loss) per common share | | $ | (0.01) | | | $ | 0.21 | | | $ | 0.17 | | | $ | 0.54 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Six Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Net income | | $ | 13,017 | | | $ | 4,518 | | | $ | 25,646 | | | $ | 8,029 | |
Basic net income per common share: | | | | | | | | |
Basic weighted average shares outstanding | | 43,949 | | | 44,759 | | | 44,003 | | | 44,751 | |
Basic net income per common share | | $ | 0.30 | | | $ | 0.10 | | | $ | 0.58 | | | $ | 0.18 | |
Diluted net income per common share: | | | | | | | | |
Basic weighted average shares outstanding | | 43,949 | | | 44,759 | | | 44,003 | | | 44,751 | |
Dilutive effect of stock options and restricted stock units | | 954 | | | 781 | | | 1,007 | | | 994 | |
Diluted weighted average shares outstanding | | 44,903 | | | 45,540 | | | 45,010 | | | 45,745 | |
Diluted net income per common share | | $ | 0.29 | | | $ | 0.10 | | | $ | 0.57 | | | $ | 0.18 | |
| | | | | | | | |
The diluted weighted-averageweighted average shares outstanding exclude restricted stock units, performance restricted stock units, shares to be purchased under the ESPP and outstanding stock options totaling 3,921498 and 624882 for the three months ended December 31,September 30, 2023 and 2022, and 2021, respectively, and 674526 and 566523 for the ninesix months ended December 31,September 30, 2023 and 2022, and 2021, respectively, because the effect would have been anti-dilutive.
5.6. Commitments and Contingencies
We do not believe that we are currently party to any pending legal action that could reasonably be expected to have a material adverse effect on our business or operating results.
6.7. Capitalization
Our stock repurchase program has been funded by our existing cash and cash equivalent balances, as well as cash flows provided by our operations.
Commvault Systems, IncInc.
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)
On April 21, 2022,20, 2023, the Board of Directors (the "Board") approved a newan increase of the existing share repurchase program of $250,000.so that $250,000 was available. The Board's authorization has no expiration date. For the ninesix months ended December 31, 2022,September 30, 2023, we repurchased $90,131$82,357 of our common stock, or approximately 1,5201,221 shares. As a result, $159,869 remainsThe remaining amount available under the current authorization.authorization as of September 30, 2023 was $173,609.
7.8. Stock Plans
The following table presents the stock-based compensation expense included in cost of services revenue,revenues, sales and marketing, research and development, general and administrative and restructuring expenses for the three and ninesix months ended December 31, 2022September 30, 2023 and 2021.2022. Stock-based compensation is attributable to restricted stock units, performance-based awards and the ESPP.
| | | | Three Months Ended December 31, | | Nine Months Ended December 31, | | | Three Months Ended September 30, | | Six Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
Cost of services revenue | | $ | 1,383 | | | $ | 1,140 | | | $ | 3,852 | | | $ | 3,367 | | |
Cost of revenues | | Cost of revenues | | $ | 1,599 | | | $ | 1,226 | | | $ | 3,289 | | | $ | 2,469 | |
Sales and marketing | Sales and marketing | | 10,479 | | | 10,073 | | | 32,037 | | | 27,355 | | Sales and marketing | | 9,941 | | | 10,165 | | | 19,645 | | | 21,558 | |
Research and development | Research and development | | 5,988 | | | 9,127 | | | 23,022 | | | 24,722 | | Research and development | | 5,385 | | | 7,793 | | | 10,732 | | | 17,034 | |
General and administrative | General and administrative | | 5,776 | | | 8,193 | | | 19,850 | | | 20,977 | | General and administrative | | 6,690 | | | 6,143 | | | 13,673 | | | 14,074 | |
Restructuring | Restructuring | | 1,019 | | | — | | | 2,306 | | | 372 | | Restructuring | | — | | | — | | | — | | | 1,287 | |
Stock-based compensation expense | Stock-based compensation expense | | $ | 24,645 | | | $ | 28,533 | | | $ | 81,067 | | | $ | 76,793 | | Stock-based compensation expense | | $ | 23,615 | | | $ | 25,327 | | | $ | 47,339 | | | $ | 56,422 | |
As of December 31, 2022,September 30, 2023, there was $155,273$123,069 of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-averageweighted average period of 1.961.72 years. We account for forfeitures as they occur. To the extent that awards are forfeited, stock-based compensation will be different from our current estimate.
Stock option activity was not significant for both the ninesix months ended December 31,September 30, 2023 and 2022. In the nine months ended December 31, 2021, there were 398 options exercised with an intrinsic value of $12,631.
Restricted Stock Units
Restricted stock unit activity for the ninesix months ended December 31, 2022 isSeptember 30, 2023 was as follows:
| Non-vested Restricted Stock Units | Non-vested Restricted Stock Units | Number of Awards | | Weighted- Average Grant Date Fair Value | Non-vested Restricted Stock Units | Number of Awards | | Weighted Average Grant Date Fair Value |
Non-vested as of March 31, 2022 | 3,310 | | | $ | 58.16 | | |
Non-vested as of March 31, 2023 | | Non-vested as of March 31, 2023 | 2,953 | | | $ | 62.52 | |
Awarded | Awarded | 1,785 | | | 63.87 | | Awarded | 666 | | | 67.94 | |
Vested | Vested | (1,587) | | | 55.70 | | Vested | (877) | | | 57.73 | |
Forfeited | Forfeited | (359) | | | 60.69 | | Forfeited | (178) | | | 65.62 | |
Non-vested as of December 31, 2022 | 3,149 | | | $ | 62.35 | | |
Non-vested as of September 30, 2023 | | Non-vested as of September 30, 2023 | 2,564 | | | $ | 65.35 | |
The weighted-averageweighted average fair value of restricted stock units awarded was $66.50$70.99 and $63.87$67.94 per unit during the three and ninesix months ended December 31, 2022,September 30, 2023, respectively, and $67.34$57.00 and $70.14$61.69 per unit during the three and ninesix months ended December 31, 2021.September 30, 2022, respectively. The weighted-averageweighted average fair value of awards includes the awards with a market condition described below.
Commvault Systems, IncInc.
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)
Performance Based Awards
In the ninesix months ended December 31, 2022,September 30, 2023, we granted 126120 performance restricted stock units ("PSUs") to certain executives. Vesting of these awards is contingent upon i) us meeting certain non-GAAP performance goals (performance-based) in fiscal 20232024 and ii) our customary service periods. The awards vest over three years.years and have the potential to vest between 0% and 200% (240 shares) based on actual fiscal 2024 performance. The vesting quantity of these awards may vary based on actual fiscal 20232024 performance. The related stock-based compensation expense is determined based on the value of the underlying shares on the date of grant and is recognized over the vesting term using the accelerated method. During the interim financial periods, management estimates the probable number of PSUs that would vest until the ultimate achievement of the performance goals is known. The awards are included in the restricted stock unit table.
Awards with a Market Condition
In the ninesix months ended December 31, 2022,September 30, 2023, we granted 126120 market performance stock units to certain executives. The vesting of these awards is contingent upon us meeting certain total shareholder return ("TSR") levels as compared to the Russell 3000 market index over the next three years. The awards vest in three annual tranches and have a maximumthe potential to vest atbetween 0% and 200% (252(240 shares) based on TSR performance. The related stock-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized using the accelerated method over the vesting term. The estimated fair value was calculated using a Monte Carlo simulation model. The fair value of the awards granted during the ninesix months ended December 31, 2022September 30, 2023 was $76.48$87.90 per unit. The awards are included in the restricted stock unit table.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “Purchase Plan”)ESPP is a shareholder approved plan under which substantially all employees may purchase our common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the Purchase PlanESPP are limited to 10% of the employee’s salary and employees may not purchase more than $25 of stock during any calendar year. Employees purchased 96 shares in exchange for $5,164 of proceeds in the six months ended September 30, 2023, and 107 shares in exchange for $5,418 of proceeds in the ninesix months ended December 31, 2022 and 85 shares in exchange for $5,160 of proceeds in the nine months ended December 31, 2021.September 30, 2022. The Purchase PlanESPP is considered compensatory and the fair value of the discount and look back provision are estimated using the Black-Scholes formula and recognized over the six-month withholding period prior to purchase. The total expense associated with the Purchase PlanESPP for the ninesix months ended December 31,September 30, 2023 and 2022 was $1,662 and 2021 was $2,847 and $2,428,$1,927, respectively. As of December 31, 2022,September 30, 2023, there was approximately $460$1,091 of unrecognized cost related to the current purchaseoffering period of our Purchase Plan.ESPP.
8.9. Income Taxes
Income tax expense was $5,710$5,720 and $14,550$12,596 in the three and ninesix months ended December 31, 2022,September 30, 2023, respectively, compared to expense of $3,018$5,135 and $5,573$8,840 in the three and ninesix months ended December 31, 2021,September 30, 2022, respectively. The increase in income tax expense relative to the prior year relates primarily to current federal and state taxes driven by the effectsincrease of capitalizationpre-tax income relative to the prior year quarter. We believe that it is more likely than not that we will not realize the benefits of our gross deferred tax assets and amortization of research and development expenses starting in fiscal year 2023 as required by the 2017 Tax Cuts and Jobs Act. Given we have recordedtherefore continue to record a valuation allowance against ourto reduce the carrying value of these gross deferred tax assets, there is no corresponding deferred tax benefit relatednet of the impact of the reversal of taxable temporary differences, to the current tax expense associated with the capitalizationzero as of research and development expenses.September 30, 2023.
9. Restructuring
Our restructuring plan, initiated in the fourth quarter of fiscal 2022, is aimed to increase efficiency in our sales, marketing and distribution functions, as well as reduce costs across all functional areas. The plan also included a reorganization to combine our EMEA and APJ field organizations. These restructuring charges relate primarily to severance and related costs associated with headcount reductions and stock-based compensation related to modifications of existing unvested awards granted to certain employees impacted by the restructuring plan.
Commvault Systems, IncInc.
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)
For the three and nine months ended December 31, 2022 and 2021, restructuring charges were comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | Nine Months Ended December 31, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Employee severance and related costs | | $ | 8,209 | | | $ | — | | | $ | 9,054 | | | $ | 1,710 | |
| | | | | | | | |
Stock-based compensation | | 1,019 | | | — | | | 2,306 | | | 372 | |
Total restructuring charges | | $ | 9,228 | | | $ | — | | | $ | 11,360 | | | $ | 2,082 | |
Restructuring accruals
The activity in our restructuring accruals for the nine months ended December 31, 2022 is as follows:
| | | | | | | | |
| | Total |
Balance as of March 31, 2022 | | $ | 2,261 | |
Employee severance and related costs | | 9,054 | |
Payments | | (4,956) | |
Balance as of December 31, 2022 | | $ | 6,359 | |
10. Revolving Credit Facility
On December 13, 2021, we entered into a five-year $100,000 senior secured revolving credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A. ("J.P. Morgan"). The Credit Facility is available for share repurchases, general corporate purposes, and letters of credit. The Credit Facility contains financial maintenance covenants, including a leverage ratio and interest coverage ratio. The Credit Facility also contains certain customary events of default which would permit the lender to, among other things, declare all loans then outstanding to be immediately due and payable if such default is not cured within applicable grace periods. The Credit Facility also limits our ability to incur certain additional indebtedness, create or permit liens on assets, make acquisitions, make investments, loans or advances, sell or transfer assets, pay dividends or distributions, and engage in certain transactions with foreign affiliates. Outstanding borrowings under the Credit Facility accrue interest at an annual rate equal to the Secured Overnight Financing Rate plus 1.25% subject to increases based on our actual leverage. The unused balance on the Credit Facility is also subject to a 0.25% annual interest charge subject to increases based on our actual leverage. As of December 31, 2022,September 30, 2023, there were no borrowings under the Credit Facility and we were in compliance with all covenants.
We have deferred the expense related to debt issuance costs, which are classified as other assets, and will amortize the costs into interest expense over the term of the Credit Facility. Unamortized amounts at December 31, 2022September 30, 2023 were $457. The amortization of debt issuance costs and interest expense incurred for the three and nine months ended December 31, 2022 was $93 and $278, respectively. Unamortized amounts at December 31, 2021 were $572.$370. The amortization of debt issuance costs and interest expense incurred was $19$93 for both the three and nine months ended December 31, 2021.
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)
11. Subsequent Events
On January 19,September 30, 2023 our Board of Directors approved a plan to sell Commvault's owned corporate headquarters in Tinton Falls, New Jersey. Subsequently, we entered into an agreement to selland 2022, and $185 for both the property for $40,000. The agreement includes a due diligence period for the buyer, is contingent on receiving approvals from certain government agencies,six months ended September 30, 2023 and includes other customary closing conditions. We believe the sale will likely close in the first half of fiscal 2024. Upon closing of the transaction, Commvault will enter into a lease for a portion of the premises.
Management has concluded that during the fourth quarter of fiscal 2023, the headquarters has met the criteria to be classified as held for sale in accordance with ASC 360-10, Impairment and Disposal of Long-Lived Assets. We expect to record a non-cash impairment charge of approximately $50,000 in the fourth quarter of fiscal 2023. We will also incur expenses for professional fees and moving associated with the sale.2022.
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis along with our consolidated financial statements and the related notes included elsewhere in this quarterly reportQuarterly Report on Form 10-Q. The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, changes in demand as well as the risks and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.2023. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Overview
Incorporated in Delaware in 1996, Commvault Systems, Inc. isprovides its customers with a global data management company offering customers enterprise level, intelligent data services via a single platform and unified code base.
We believe in solving hard problems for our customers by enabling our customers to accelerate their digital transformation in today's ever-evolving workforce. Our product portfolio includes tools and machine learning technology that drives automation, reduces complexity, reigns in data fragmentation, and accelerates a customer’s cloud journey. Our product functionality share the same back-end technologies to deliver the benefits of a holistic approach to protecting, managing, and securing data. Our products address many aspects of data management, from data protection platform that helps them secure, defend and security, torecover their most precious asset, their data. We provide these products and services for their data governance, transformation and insights, while providing scalability. We believeacross the following environments: on-premises, hybrid, or multi-cloud. Our data protection offerings are delivered via self-managed software, software-as-a-service (SaaS), integrated appliances, or managed by partners. Customers use our technology to protect themselves from threats like ransomware and professional services provide the broadest set of capabilities in the industry, which enables customers to efficiently and cost-effectively scalerecover their data on premises or in the cloud.efficiently.
Sources of Revenues
We derive agenerate revenues through subscription arrangements, perpetual software licenses, customer support contracts and other services. A significant portion of our total revenues comes from subscription arrangements, which include both sales of term-based licenses and SaaS offerings. We are focused on these types of our software applications. We do not customize our software for a specific end-user customer. We sell our software applications to end-user customers both directly through our sales force and indirectly through our global network of value-added reseller partners, systems integrators, corporate resellers and original equipment manufacturers. Our software and productsrecurring revenue was 46% and 45% of our total revenues for the nine months ended December 31, 2022 and 2021, respectively.arrangements.
We continue to focus onexpect our subscription and other recurring revenue arrangements andwill continue to generate revenuerevenues from the renewals of subscriptionterm-based licenses and SaaS offerings sold in prior years. Any of our licensingpricing models (capacity, instance based, etc.) can be sold via a subscription arrangement.arrangement, either through term-based licensing or hosted services. In theseterm-based license arrangements, the customer has the right to use the software over a designated period of time. The capacity of the license is fixed and the customer has made an unconditional commitment to pay. Software revenue in these arrangements is generally recognized when the software is delivered. DuringIn SaaS offerings, revenue is recognized ratably over the nine months ended December 31, 2022 and 2021, approximately 78% and 65% of software license revenue was sold under a subscription model, respectively. contract period.
We also sell to someend-user customers primarily managed service providers, via utility, or pay-as-you-go models. In these arrangements, there is no minimum commitmentboth directly through our sales force and actual usage is regularly measuredindirectly through our global network of value-added reseller partners, systems integrators, corporate resellers and billed. Revenue in these utility arrangements is recognized as the software is used.
Our total software and products revenue in any particular period is, to a certain extent, dependent upon our ability to generate revenues from large customer software and products deals, which we refer to as larger deal transactions. Larger deal transactions (transactions greater than $0.1 million of software and products revenue) represented 73% and 71% of our total software and products revenue in the nine months ended December 31, 2022 and 2021, respectively.
Software and productsoriginal equipment manufacturers. Subscription revenue generated through indirect distribution channels accounted for approximately 90% of total software and productssubscription revenue in both the ninesix months ended December 31, 2022September 30, 2023 and 2021. Software and products2022. Subscription revenue generated through direct distribution channels accounted for approximately 10% of total software and productssubscription revenue in both the ninesix months ended December 31, 2022September 30, 2023 and 2021.2022. Deals initiated by our direct sales force are sometimes transacted through indirect channels based on end-user customer requirements, which are not always in our control and can cause this overall percentage split to vary from period-to-period. As such, there may be fluctuations in the dollars and percentage of software and productssubscription revenue generated through our direct distribution channels from time-to-time. We believe that the growth of our software and productssubscription revenue, derived from both our indirect channel partners and direct sales force, are key attributes to our long-term growth strategy. We intend to continue to invest in both our channel relationships and direct sales force in the future, but we continue to expect more revenue to be generated through indirect distribution channels over the long term. The
failure of our indirect distribution channels or our direct sales force to effectively sell our software applications could have a material adverse effect on our revenues and results of operations.
We have a non-exclusive distribution agreement with Arrow Enterprise Computing Solutions, Inc. ("Arrow"), a subsidiary of Arrow Electronics, Inc. Pursuantpursuant to this distribution agreement,which Arrow's primary role is to enable a more efficient and effective distribution channel for our products and services by managing our reseller partners and leveraging their own industry experience. We generated 37% and 36% of our total revenues through Arrow for both the ninesix months ended December 31, 2022September 30, 2023 and 2021, respectively.2022. If Arrow were to discontinue or reduce the sales of our products or if our agreement with Arrow were terminated, and if we were unable to take back the management of our reseller channel or find another distributor to replace Arrow, there could be a material adverse effect on our future business.
We have an original equipment manufacturer agreement with Hitachi Vantara ("Hitachi") which allows themOur customer support revenue includes support contracts tied to market, sell and support our software applications and services on a stand-alone basis and/or incorporate our software applications into their own hardware products. Hitachi has no obligation to recommend or offer our software applications exclusively, or at all, and they have no minimum sales requirements and can terminate our relationship at any time.
Our services revenue was 54% and 55% of our total revenues for the nine months ended December 31, 2022 and 2021, respectively. Our services revenue is made up of fees from the delivery of customer support and other professional services, which are typically sold in connection with the sale of our software applications. Customer support agreements provide technical support and unspecifiedincludes software updates on a when-and-if-available basis, telephone support, integrated web-based support, and
other premium support offerings, for an annual fee based on licenses purchasedboth subscription software and the levelperpetual software license arrangements. We sell our customer support contracts as a percentage of service subscribed. Metallic, our as-a-service solution, allows customers to use hosted software over the contract period without taking possession of thenet software. Revenue related to MetallicCustomer support revenue is also included in services revenue and is generally recognized ratably over the contract term. Otherterm of the customer support agreement.
Our other services revenue consists primarily of professional services include consulting,service offerings, including consultation, assessment and design, services, implementation and post-deploymentinstallation services, and training, all of which to date have predominantly been sold in connection withcustomer education. Revenues from other services can vary period over period based on the sale of software applications.
timing services are delivered and are typically recognized as the services are performed.
Foreign Currency Exchange Rates’ Impact on Results of Operations
Sales outside the United States were 47%46% of our total revenuerevenues for the ninesix months ended December 31, 2022September 30, 2023 and 49%45% of our total revenuerevenues for the ninesix months ended December 31, 2021.September 30, 2022. The income statements of our non-U.S. operations are translated into U.S. dollars at the average exchange rates for each applicable month in a period. To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions generally results in increased revenue,revenues, operating expenses and income from operations for our non-U.S. operations. Similarly, our revenue,revenues, operating expenses and net income will generally decrease for our non-U.S. operations if the U.S. dollar strengthens against foreign currencies.
Using the average foreign currency exchange rates from the three months ended December 31, 2021,September 30, 2022, our softwaretotal revenues would have been lower by $2.6 million, our cost of revenues would have been lower by $0.1 million and products revenueour operating expenses would have been lower by $0.8 million from non-U.S. operations for the three months ended September 30, 2023. Using the average foreign currency exchange rates from the six months ended September 30, 2022, our total revenues would have been lower by $1.4 million, our cost of revenues would have been higher by $4.4 million, our services revenue would have been higher by $5.3 million, our cost of sales would have been higher by $1.1$0.2 million and our operating expenses would have been higher by $5.4$0.1 million from non-U.S. operations for the threesix months ended December 31, 2022. Using the average foreign currency exchange rates from the nine months ended December 31, 2021, our software and products revenue would have been higher by $12.7 million, our services revenue would have been higher by $16.3 million, our cost of sales would have been higher by $3.5 million and our operating expenses would have been higher by $14.9 million from non-U.S. operations for the nine months ended December 31, 2022.September 30, 2023.
In addition, we are exposed to risks of foreign currency fluctuation primarily from cash balances, accounts receivables and intercompany accounts denominated in foreign currencies and are subject to the resulting transaction gains and losses, which are recorded as a component of general and administrative expenses. We recognized net foreign currency transaction losses of approximately $0.3$0.1 million and $0.1$0.2 million for the three and ninesix months ended December 31, 2022,September 30, 2023, respectively. We recognized net foreign currency transaction losses of approximately $0.3 million and $0.5gains of approximately $0.2 million for the three and ninesix months ended December 31, 2021,September 30, 2022, respectively.
Critical Accounting Policies
In presenting our consolidated financial statements in conformity with U.S. generally accepted accounting principles,GAAP, we are required to make estimates and judgments that affect the amounts reported therein. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate. Actual results may differ significantly from these estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows willmay be affected.
In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application, while in other cases, significant judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. We consider these policies requiring significant management judgment to be critical accounting policies. These critical accounting policies are:
•Revenue Recognition
•Accounting for Income Taxes
•Goodwill
There have been no significant changes in our critical accounting policies during the ninesix months ended December 31, 2022September 30, 2023 as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” included in our Annual Report on Form 10-K for the year ended March 31, 2022.2023.
Results of Operations
Amounts reported in millions are rounded based on the amounts in thousands. As a result, the sum of the components reported in millions may not equal the total amount reported in millions due to rounding.
Three months ended December 31, 2022September 30, 2023 compared to three months ended December 31, 2021September 30, 2022
Revenues (in($ in millions)
–Total revenues decreased $7.3increased $12.9 million, or 4% as a result of the following:
•A decrease in software and products revenue which was significantly impacted by the7% year over year, strengthening of the US dollar, particularly the Eurodriven primarily by an increase in subscription revenue, offset by decreases in perpetual license revenue. We remain focused on selling subscription arrangements through both term-based software licenses and Pound. Using the average foreign currency exchange rates from the three months ended December 31, 2021, our total revenues would have increased 1% compared to the three months ended December 31, 2021.
•Software and products revenue represented 46% of our total revenue in the three months ended December 31, 2022 and 49% of our total revenue in the three months ended December 31, 2021.
•Services revenue represented 54% of our total revenue in the three months ended December 31, 2022 and 51% of our total revenue in the three months ended December 31, 2021.SaaS offerings.
–Software and productsSubscription revenue decreased $9.0increased $19.5 million, or 9%25% year over year, driven primarily by an 86% increase in our SaaS revenue. Term-based license revenue increased 10%, as a result of the following:
•A decrease of $10.4 million, or 14%,due to an increase in larger deal revenueterm-based license transactions (deals greater than $0.1 million). Larger deal period over period. Subscription revenue represented 72%accounted for 49% of our software and products revenue in the three months ended December 31, 2022 and 76% of our software and products revenue in the three months ended December 31, 2021.
•The average dollar amount of larger deal revenue transactions was approximately $312 thousand and $332 thousandtotal revenues for the three months ended December 31, 2022 and 2021, respectively, representing a 6% decrease. There were 206 larger deal revenue transactionsSeptember 30, 2023 compared to 42% for the three months ended December 31, 2022, compared to 225 dealsSeptember 30, 2022.
–Perpetual license revenue decreased $5.4 million, or 27% year over year, as a result of our continued focus on subscription arrangements. Perpetual license revenue accounted for 7% of total revenues for the three months ended December 31, 2021.
•This decrease was partially offset by an increase of $1.4 million in transactions less than $0.1 million.
•Using the average foreign currency exchange rates fromSeptember 30, 2023 compared to 11% for the three months ended December 31, 2021, our software and productsSeptember 30, 2022.
–Customer support revenue would have decreased 5%$1.0 million, or 1% year over year, driven by a $7.6 million decrease in customer support revenue attached to perpetual license support renewals, partially offset by a $6.6 million increase in support allocated to term-based license arrangements.
–Other services revenue decreased $0.2 million, or 1% compared to the three months ended December 31, 2021.
–Servicessame period in the prior year. Changes in other services revenue increased $1.7 million, or 2%,can vary period over period primarily due to the following:
•An increase in othertiming services revenue, driven primarily by the year over year increase in revenue from Metallic as-a-service arrangements, partially offset by a decrease in revenue from customer support agreements.
•Using the average foreign currency exchange rates from the three months ended December 31, 2021, our services revenue would have increased 7% compared to the three months ended December 31, 2021.are delivered.
We track software and products revenuetotal revenues on a geographic basis. During the fourth quarter of fiscal 2022, we combined the management of our EMEA and APJ field organizations into our International region (Europe, Middle East, Africa, Australia, India, Japan, Southeast Asia, China). Our Americas region includes the United States, Canada, and Latin America. Our International region primarily includes Europe, Middle East, Africa, Australia, India, Southeast Asia and China. Americas and International represented 51%60% and 49%40% of total software and products revenue,revenues, respectively, for the three months ended December 31, 2022. Software and products revenue decreasedSeptember 30, 2023. Total revenues increased 4% year over year by 20% in the Americas and increased 6%12% year over year in International.
▪TheTotal revenues in the Americas was impacted by a 21% increase in subscription revenue, offset by a 51% decrease in Americas software and products revenue was primarily due to a 27% decrease in larger deal transactionsperpetual license revenue, driven by a decrease in the average dollar amount of larger deal transactions as a result of slower buying patternsplanned shift from selling perpetual licenses to selling subscription arrangements. Customer support and lower close rate execution. This decrease was partially offset by an increase of $1.7 million in transactions less than $0.1 million.other services revenues declined 5% and 4%, respectively.
▪The increase in International software and products revenuetotal revenues was primarily due to an 11%a 32% increase in larger deal transactionssubscription revenue, offset by a 6% decrease in perpetual license revenue. Using the average foreign currency exchange rates from the three months ended December 31, 2021, our International softwareCustomer support and products revenue would haveother services revenues each increased 17% compared to the three months ended December 31, 2021.4% year over year.
Our software and products revenuetotal revenues in International is subject to changes in foreign exchange rates as further discussed above in the “Foreign Currency Exchange Rates’ Impact on Results of Operations” section.
Cost of Revenues and Gross Margin ($ in millions)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2023 | | 2022 |
| | Cost of Revenues | Gross Margin | | Cost of Revenues | Gross Margin |
Subscription | | $ | 14.6 | | 85 | % | | $ | 8.9 | | 89 | % |
Perpetual license | | 0.6 | | 96 | % | | 0.7 | | 97 | % |
Customer support | | 14.9 | | 81 | % | | 15.4 | | 80 | % |
Other services | | 7.7 | | 35 | % | | 7.3 | | 39 | % |
Total | | $ | 37.9 | | 81 | % | | $ | 32.3 | | 83 | % |
–Total cost of revenues increased $4.5$5.6 million, and represented 18%19% and 15%17% of our total revenues for the three months ended December 31,September 30, 2023 and 2022, and 2021, respectively.
–Cost of software and productssubscription revenue decreased $1.2increased $5.8 million, and represented 3%representing 15% of our total software and productssubscription revenue for the three months ended December 31, 2022September 30, 2023 compared to 4%11% for the three months ended December 31, 2021.September 30, 2022. The decreaseyear over year increase is related to a decline in hardware as partprimarily the result of our transition to a software model for appliances and the reduction in third party royalties associated with the current version of our Hyperscale software.
–Cost of services revenue increased $5.7 million, representing 30% of our total services revenue for the three months ended December 31, 2022 compared to 25% for the three months ended December 31, 2021. The increase in cost of services revenue primarily related to an increase in the cost of infrastructure related to Metallic as-a-service offering as they continuegrowth in our SaaS offerings.
–Cost of perpetual license revenue decreased $0.1 million and represented 4% of our total perpetual revenue for the three months ended September 30, 2023 compared to scale.3% for the three months ended September 30, 2022.
–Cost of customer support revenue decreased $0.5 million and represented 19% of our total customer support revenue for the three months ended September 30, 2023 compared to 20% for the three months ended September 30, 2022.
–Cost of other services revenue increased $0.3 million, representing 65% of our total other services revenue for the three months ended September 30, 2023 compared to 61% for the three months ended September 30, 2022. The increase in cost of other services revenue was driven by timing of the delivery of certain professional services.
Operating Expenses ($ in millions)
–Sales and marketing expenses decreased $1.8increased $3.4 million, or 2%4%, primarily due to decreasesincreases in employee compensation and sales commissions associated with decreased revenueincreased revenues relative to the same period in the prior year. These increases were partially offset by a $0.2 million decrease in stock-based compensation.
–Research and development expenses decreased $6.8$5.8 million, or 17%16%, primarily due todriven by decreases in employee compensation and related expenses, including a $3.1 million decrease in stock-based compensation, and the completion of payments related to key employees of Hedvig, Inc., which ended in the fourth quarter of fiscal 2022. Investing in research and development has been a priority for Commvault, and we anticipate continued spending related to the development of our data and information management software applications.
–General and administrative expenses decreased $5.1 million, or 18%, primarily due to the following:
•Decreases in employee compensation and related expenses, including a $2.4 million decrease in stock compensation expense.
•A decreasestock-based compensation. Investing in legal costs relativeresearch and development remains a priority for Commvault and we anticipate continued responsible spending related to the same perioddevelopment of the prior year.our software applications and hosted services.
–Restructuring: Our restructuring plan, initiatedGeneral and administrative expenses increased $2.4 million, or 10%, primarily due to increases in the fourth quarter of fiscal 2022, is aimed to increase efficiency in our sales, marketing and distribution functions as well as reduce costs across all functional areas. The plan also included a reorganization to combine our EMEA and APJ field organizations. Restructuring expenses were $9.2 million for the three months ended December 31, 2022. There were no restructuring charges for the three months ended December 31, 2021. These restructuring charges relate primarily to severanceemployee compensation and related costs associated with headcount reductions. These charges include $1.0expenses, including an increase of $0.5 million ofin stock-based compensation related to modifications of existing awards granted to certain employees included in the restructuring for the three months ended December 31, 2022. We cannot guarantee the restructuring program will achieve its intended result. Risks associated with this restructuring program also include additional unexpected costs, adverse effects on employee morale and the failure to meet operational and growth targets due to the loss of key employees, any of which may impair our ability to achieve anticipated results of operations or otherwise harm our business.year over year.
–Depreciation and amortization expense was $2.5decreased $1.0 million, driven by the reclassification of our owned corporate headquarters as assets held for bothsale in the three months ended December 31, 2022 and 2021.fourth quarter of fiscal 2023.
Income Tax Expense
Income tax expense was $5.7 million in the three months ended December 31, 2022September 30, 2023 compared to expense of $3.0$5.1 million in the three months ended December 31, 2021.September 30, 2022. The increase in income tax expense relative to the prior year relates primarily to current federal and state taxes driven by the effectsincrease of capitalization and amortization of research and development expenses starting in fiscal year 2023 as required by the 2017 Tax Cuts and Jobs Act. Given we have recorded a valuation allowance against our deferred tax assets, there is no corresponding deferred tax benefit relatedpre-tax income relative to the current tax expense associated with the capitalizationprior year quarter.
NineSix months ended December 31, 2022September 30, 2023 compared to ninesix months ended December 31, 2021September 30, 2022
Revenues (in($ in millions)
–Total revenues increased $17.5$13.1 million, or 3% as a result of the following:year over year, driven primarily by an increase in subscription revenue, offset by decreases in perpetual license and customer support revenues. We remain focused on selling subscription arrangements through both term-based software licenses and SaaS offerings.
•–AnSubscription revenue increased $29.2 million, or 18% year over year, driven primarily by a 92% increase in software and products and Metallic as-a-service revenues.
•Software and productsour SaaS revenue represented 46% of our total revenue in the nine months ended December 31, 2022 and 45% of our total revenue in the nine months ended December 31, 2021.
•Services revenue represented 54% of our total revenue in the nine months ended December 31, 2022 and 55% of our total revenue in the nine months ended December 31, 2021.
•Using the average foreign currency exchange rates from the nine months ended December 31, 2021, our total revenues would have increased 8% compared to the nine months ended December 31, 2021.
–Software and productssame period in the prior year. Term-based license revenue increased $8.8 million, or 3%, as a result2% year over year, due to an increase in the number of the following:
•An increase of $12.1 million, or 7%, in larger deal revenueterm-based license transactions (deals greater than $0.1 million). Larger deal revenue represented 73% of our software and products revenue in the nine months ended December 31, 2022 and 71% of our software and products revenue in the nine months ended December 31, 2021.
•The average dollar amount of larger deal revenue transactions was approximately $344 thousand and $317 thousand for the nine months ended December 31, 2022 and 2021, respectively, representing a 9% increase. There were 563 larger deal revenue transactions for the nine months ended December 31, 2022, compared to 573 deals for the nine months ended December 31, 2021.
•This increase was partially offset by a decrease of $3.2 million in transactions less than $0.1 million.
•Using the average foreign currency exchange rates from the nine months ended December 31, 2021, our software and products revenue would have increased 8% compared to the nine months ended December 31, 2021.
–Services revenue increased $8.7 million, or 3%, primarily due to the following:
•An increase in other services revenue, driven primarily by the year period over year increase in revenue from Metallic as-a-service offerings,period, partially offset by a decrease in the average selling price of these transactions. Subscription revenue fromaccounted for 49% of total revenues for the six months ended September 30, 2023 compared to 43% for the six months ended September 30, 2022.
–Perpetual license revenue decreased $10.1 million, or 27% year over year, as a result of our continued focus on subscription arrangements. Perpetual license revenue accounted for 7% of total revenues for the six months ended September 30, 2023 compared to 10% for the six months ended September 30, 2022.
–Customer support revenue decreased $5.4 million, or 3% year over year, driven by a $19.1 million decrease in customer support agreements.revenue attached to perpetual license support renewals, partially offset by a $13.7 million increase in support allocated to term-based license arrangements.
•–Using the average foreign currency exchange rates from the nine months ended December 31, 2021, ourOther services revenue would have increased 8%decreased $0.6 million, or 3% year over year, primarily due to a decrease in professional services delivered during the period compared to the ninesame period in the prior year.
We track total revenues on a geographic basis. Our Americas region includes the United States, Canada, and Latin America. Our International region primarily includes Europe, Middle East, Africa, Australia, India, Southeast Asia and China. Americas and International represented 61% and 39% of total revenues, respectively, for the six months ended December 31, 2021.September 30, 2023. Total revenues increased 2% in the Americas and increased 6% in International.
▪Total revenues in the Americas was impacted by a 15% increase in subscription revenue, offset by a 43% decrease in perpetual license revenue, driven by the shift from selling perpetual licenses to subscription arrangements. Customer support and other services revenues each declined 6%.
▪The increase in International total revenues was primarily due to a 23% increase in subscription revenue, offset by a 15% decrease in perpetual license revenue. Customer support revenue increased 1% year over year. Other services revenue increased 4% year over year due to an increase in the delivery of professional services for the region against the comparative period.
Americas and International represented 60% and 40% of total software and products revenue, respectively, for the nine months ended December 31, 2022. Software and products revenue increased year over year by 3% in the Americas and by 3% in International.
▪The increase in Americas software and products revenue was primarily the result of a 6% increase in larger deal transactions revenue driven primarily by an increase in the average dollar amount of larger deal transactions.
▪The increase in International software and products revenue was primarily the result of a 7% increase in larger deal revenue driven by an increase in the average dollar value of larger deal transactions. Using the average foreign currency exchange rates from the nine months ended December 31, 2021, our International software and products revenue would have increased 15% compared to the nine months ended December 31, 2021.
Our software and products revenuetotal revenues in International is subject to changes in foreign exchange rates as more fullyfurther discussed above in the “Foreign Currency Exchange Rates’ Impact on Results of Operations” section.
Cost of Revenues and Gross Margin ($ in millions)
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended September 30, |
| | 2023 | | 2022 |
| | Cost of Revenues | Gross Margin | | Cost of Revenues | Gross Margin |
Subscription | | $ | 27.0 | | 86 | % | | $ | 19.9 | | 88 | % |
Perpetual license | | 1.1 | | 96 | % | | 1.3 | | 97 | % |
Customer support | | 29.9 | | 81 | % | | 30.5 | | 81 | % |
Other services | | 15.5 | | 32 | % | | 14.4 | | 38 | % |
Total | | $ | 73.4 | | 82 | % | | $ | 66.1 | | 83 | % |
–Total cost of revenues increased $18.8$7.3 million, and represented 17%18% and 15%17% of our total revenues for the ninesix months ended December 31,September 30, 2023 and 2022, and 2021, respectively.
–Cost of software and productssubscription revenue increased $0.8$7.1 million, and represented 4%representing 14% of our total software and products revenue for both the nine months ended December 31, 2022 and 2021.
–Cost of services revenue increased $18.0 million, representing 29% of our total servicessubscription revenue for the ninesix months ended December 31, 2022September 30, 2023 compared to 24%12% for the ninesix months ended December 31, 2021.September 30, 2022. The year over year increase in costis primarily the result of services revenue primarily related to an increase in the cost of infrastructure related to Metallic as-a-service offering as they continuegrowth in our SaaS offerings.
–Cost of perpetual license revenue decreased $0.2 million and represented 4% of our total perpetual revenue for the six months ended September 30, 2023 compared to scale.3% for the six months ended September 30, 2022.
–Cost of customer support revenue decreased $0.6 million and represented 19% of our total customer support revenue for both the six months ended September 30, 2023 and 2022.
–Cost of other services revenue increased $1.0 million, representing 68% of our total other services revenue for the six months ended September 30, 2023 compared to 62% for the six months ended September 30, 2022. The increase in cost of other services revenue was driven by timing of the delivery of certain professional services.
Operating Expenses ($ in millions)
–Sales and marketing expenses increased $5.1 million, or 2%, primarily due to a $4.7 million increase in stock-based compensation and an increase in travel expenses versus the same period of the prior year.
–Research and development expenses decreased $3.4 million, or 3%, primarily due to a $1.7 million decrease in stock-based compensation and the completion of payments related to key employees of Hedvig, Inc., which ended in the fourth quarter of fiscal 2022. Investing in research and development has been a priority for Commvault, and we anticipate continued spending related to the development of our data and information management software applications.
–General and administrative expenses decreased $4.4 million, or 5%, primarily due to the following:
•A decrease in legal costs relative to the same period of the prior year.
•A $1.1 million decrease in stock-based compensation relative to the same time in the prior year.
•Partially offset by an increase in employee compensation and related expenses.
–Restructuring: Our restructuring plan, initiated in the fourth quarter of fiscal 2022, is aimed to increase efficiency in our sales, marketing and distribution functions as well as reduce costs across all functional areas. The plan also included a reorganization to combine our EMEA and APJ field organizations. Restructuring expenses were $11.4 million and $2.1 million for the nine months ended December 31, 2022 and 2021, respectively. These restructuring charges relate primarily to severance and related costs associated with headcount reductions. These charges include $2.3 million and $0.4 million of stock-based compensation related to modifications of existing awards granted to certain employees included in the restructuring for the nine months ended December 31, 2022 and 2021, respectively. We cannot guarantee the restructuring program will achieve its intended result. Risks associated with this restructuring program also include additional unexpected costs, adverse effects on employee morale and the failure to meet operational and growth targets due to the loss of key employees, any of which may impair our ability to achieve anticipated results of operations or otherwise harm our business.
–Depreciation and amortization expense increased $0.5 million, from $7.1 million in the nine months ended December 31, 2021 to $7.6 million in the nine months ended December 31, 2022, as a result of the acquisition of an intangible asset in the fourth quarter of fiscal year 2022.
Operating Expenses ($ in millions)
–Sales and marketing expenses increased $2.6 million, or 2%, primarily due to increases in employee compensation and related expenses, partially offset by a $1.9 million decrease in stock-based compensation.
–Research and development expenses decreased $14.5 million, or 19%, driven by decreases in employee compensation and related expenses, including a $6.3 million decrease in stock-based compensation. Investing in research and development remains a priority for Commvault and we anticipate continued responsible spending related to the development of our software applications and hosted services.
–General and administrative expenses increased $2.4 million, or 5%, primarily due to increases in employee compensation and related expenses, offset by a decrease of $0.4 million in stock-based compensation year over year.
–Depreciation and amortization expense decreased $2.0 million, or 39%, driven by the reclassification of our owned corporate headquarters as assets held for sale in the fourth quarter of fiscal 2023.
Income Tax Expense
Income tax expense was $14.6$12.6 million in the ninesix months ended December 31, 2022September 30, 2023 compared to expense of $5.6$8.8 million in the ninesix months ended December 31, 2021.September 30, 2022. The increase in income tax expense relative to the prior year relates primarily to current federal and state taxes driven by the effectsincrease of capitalization and amortization of research and development expenses starting in fiscal year 2023 as required by the 2017 Tax Cuts and Jobs Act. Given we have recorded a valuation allowance against our deferred tax assets, there is no corresponding deferred tax benefit relatedpre-tax income relative to the current tax expense associated with the capitalizationprior year period.
Liquidity and Capital Resources
As of December 31, 2022, our cash balance was $273.5 million. The amount of cash and cash equivalents held outside of the United States by our foreign legal entities was $156.6 million. In recent fiscal years, our principal source of liquidity has been cash provided by operations. As of September 30, 2023, our cash and cash equivalents balance was $283.3 million, of which approximately $190.0 million was held outside of the United States by our foreign legal entities. These balances are dispersed across approximately 35 international locations around the world. We believe that such dispersion meets the current and anticipated future liquidity needs of our foreign legal entities. In the event we need to repatriate funds from outside of the United States, such repatriation would likely be subject to restrictions by local laws and/or tax consequences, including foreign withholding taxes.
On December 13, 2021, we entered into a five-year $100 million senior secured revolving credit facility (the “Credit Facility”) with J.P. Morgan.JPMorgan Chase Bank, N.A. The Credit Facility is available for share repurchases, general corporate purposes, and letters of credit. The Credit Facility contains financial maintenance covenants, including a leverage ratio and interest coverage ratio. The Credit Facility also contains certain customary events of default which would permit the lender to, among other things, declare all loans then outstanding to be immediately due and payable if such default is not cured within applicable grace periods. The Credit Facility also limits our ability to incur certain additional indebtedness, create or permit liens on assets, make acquisitions, make investments, loans or advances, sell or transfer assets, pay dividends or distributions, and engage in certain transactions with foreign affiliates. Outstanding borrowings under the Credit Facility accrue interest at an annual rate equal to the Secured Overnight Financing Rate plus 1.25% subject to increases based on our actual leverage. The unused balance on the Credit Facility is also subject to a 0.25% annual interest charge subject to increases based on our actual leverage. As of December 31, 2022,September 30, 2023, there were no borrowings under the Credit Facility and we were in compliance with all covenants.
On April 21, 2022,20, 2023, the Board of Directors approved a newan increase of the existing share repurchase program ofso that $250.0 million.million was available. The Board's authorization has no expiration date. For the ninesix months ended December 31, 2022,September 30, 2023, we have repurchased $90.1$82.4 million of our common stock. As a result, $159.9 million remainsThe remaining amount available under the current authorization.authorization as of September 30, 2023 was $173.6 million.
Our summarized cash flow information is as follows (in thousands):
| | | | Nine Months Ended December 31, | | | Six Months Ended September 30, |
| | | 2022 | | 2021 | | | 2023 | | 2022 |
Net cash provided by operating activities | Net cash provided by operating activities | | $ | 102,455 | | | $ | 90,064 | | Net cash provided by operating activities | | $ | 79,374 | | | $ | 72,277 | |
Net cash used in investing activities | Net cash used in investing activities | | (4,147) | | | (6,355) | | Net cash used in investing activities | | (1,985) | | | (3,174) | |
Net cash used in financing activities | Net cash used in financing activities | | (80,902) | | | (242,335) | | Net cash used in financing activities | | (75,989) | | | (51,491) | |
Effects of exchange rate - changes in cash | Effects of exchange rate - changes in cash | | (11,444) | | | (4,920) | | Effects of exchange rate - changes in cash | | (5,891) | | | (22,634) | |
Net increase (decrease) in cash and cash equivalents | | $ | 5,962 | | | $ | (163,546) | | |
Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | | $ | (4,491) | | | $ | (5,022) | |
–Net cash provided by operating activities was impacted by net income adjusted for the impact of non-cash charges an increaseand a decrease in accounts receivable and deferred commission costs andpartially offset by a decrease in accrued liabilities.
–Net cash used in investing activities was related to $2.0$0.6 million for the purchase of equity securities and $2.2$1.4 million of capital expenditures.
–Net cash used in financing activities was the result of $90.1$82.4 million of repurchases of common shares, partially offset by $9.2$6.4 million of proceeds from employee purchases of common shares under the ESPP and the exercise of stock options.
Working capital increased $25.5decreased $4.6 million from $90.0$140.8 million as of March 31, 20222023 to $115.5$136.2 million as of December 31, 2022.September 30, 2023. The net increasedecrease in working capital was primarily driven by cash provided by operating activitiesdecreases in accounts receivable and was impacted by the fluctuations in exchange rates on foreign currency balances.accrued liabilities.
We believe that our existing cash, cash equivalents and our cash from operations will be sufficient to meet our anticipated cash needs for working capital, income taxes, capital expenditures and potential stock repurchases for at least the next twelve months. We may seek additional funding through public or private financings or other arrangements during this period. Adequate funds may not be available when needed or may not be available on terms favorable to us, or at all. If additional funds are raised by issuing equity securities, dilution to existing stockholders will result. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to fund additional interest expense. If funding is insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.
Off-Balance Sheet Arrangements
As of December 31, 2022,September 30, 2023, we did not have off-balance sheet financing arrangements, including any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.
Impact of Recently Issued Accounting Standards
See Note 2 of the notes to the unauditedThere were no recently issued accounting standards that had a material effect on our condensed consolidated financial statements for a discussion of the impact ofand accompanying disclosures, and no recently issued accounting standards.standards that are expected to have a material impact on our condensed consolidated financial statements and accompanying disclosures.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
None.
Foreign Currency Risk
Economic Exposure
As a global company, we face exposure to adverse movements in foreign currency exchange rates. Our international sales are generally denominated in foreign currencies and this revenuethese revenues could be materially affected by currency fluctuations. Approximately 47%46% of our revenues were from outside the United States for the ninesix months ended December 31, 2022.September 30, 2023. Our primary exposures are to fluctuations in exchange rates for the U.S. dollar versus the Euro, and to a lesser extent, the Australian dollar, British pound sterling, Canadian dollar, Chinese yuan, Indian rupee, Korean won and Singapore dollar. Changes in currency exchange rates could adversely affect our reported revenues and require us to reduce our prices to remain competitive in foreign markets, which could also have a material adverse effect on our results of operations. Historically, we have periodically reviewed and revised the pricing of our products available to our customers in foreign countries and we have not maintained excess cash balances in foreign accounts.
Transaction Exposure
Our exposure to foreign currency transaction gains and losses is primarily the result of certain net receivables due from our foreign subsidiaries and customers being denominated in currencies other than the functional currency of the subsidiary. Our foreign subsidiaries conduct their businesses in local currency and we generally do not maintain excess U.S. dollar cash balances in foreign accounts.
Foreign currency transaction gains and losses are recorded in general and administrative expenses in the consolidated statements of operations. We recognized net foreign currency transaction losses of approximately $0.3$0.1 million and $0.1$0.2 million for the three and ninesix months ended December 31, 2022,September 30, 2023, respectively. We recognized net foreign currency transaction losses of approximately $0.3 million and $0.5gains of approximately $0.2 million for the three and ninesix months ended December 31, 2021,September 30, 2022, respectively.
PART II. OTHER INFORMATION
Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the third quarter of fiscal 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Internal Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are subject to claims in legal proceedings arising in the normal course of business. We do not believe that we are currently party to any pending legal action that could reasonably be expected to have a material adverse effect on our business or operating results. Please refer to Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 20222023 for additional information.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2022,2023, which are incorporated herein by reference, and could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of the risks actually occur, our business, financial conditions or results of operations could be negatively affected. In that case, the trading price of our stock could decline, and our stockholders may lose part or all of their investment. There have been no material changes from the risk factors set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2023.
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities
Purchases of Equity Securities by the Issuer
On April 21, 2022,20, 2023, the Board of Directors approved a newan increase of the existing share repurchase program ofso that $250.0 million.million was available. The Board's authorization has no expiration date. During the three months ended December 31, 2022,September 30, 2023, we repurchased $31.3 million of common stock, or approximately 0.50.4 million shares, under our share repurchase program. As a result, $159.9 million remainsof September 30, 2023, the remaining amount available under the current authorization.authorization was $173.6 million. A summary of our repurchases of common stock is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as part of publicly announced programs | | Approximate dollar value of shares that may yet be purchased under the program (in thousands) |
October 1-31, 2022 | | 183,000 | | | $ | 57.16 | | | 183,000 | | | $180,754 |
November 1-30, 2022 | | 160,400 | | | $ | 65.07 | | | 160,400 | | | $170,317 |
December 1-31, 2022 | | 163,200 | | | $ | 64.02 | | | 163,200 | | | $159,869 |
Three Months Ended December 31, 2022 | | 506,600 | | | $ | 61.87 | | | 506,600 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as part of publicly announced programs | | Approximate dollar value of shares that may yet be purchased under the program (in thousands) |
July 1-31, 2023 | | 131,700 | | | $ | 75.35 | | | 131,700 | | | $195,012 |
August 1-31, 2023 | | 164,200 | | | $ | 69.65 | | | 164,200 | | | $183,577 |
September 1-30, 2023 | | 146,074 | | | $ | 68.24 | | | 146,074 | | | $173,609 |
Three months ended September 30, 2023 | | 441,974 | | | $ | 70.88 | | | 441,974 | | | |
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.During the three months ended September 30, 2023, no directors or officers of the Company adopted or terminated any Rule 10b5-1 trading arrangement or “Non-Rule 10b5-1 trading arrangement” as each term is defined in Item 408 of Regulation S-K.
Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of September 30, 2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the second quarter of fiscal 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Internal Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 6. Exhibits
| | | | | |
Exhibit No. | Description |
| PurchaseCertificate of Amendment of Amended and Sale Agreement by and betweenRestated Certificate of Incorporation of Commvault and Ashling Development, LLC with an effective date of January 31, 2023Systems, Inc. |
| Purchase and Sale AgreementThe Commvault Systems, Inc. 2016 Omnibus Incentive Plan (As Amended Through the Sixth Amendment Thereof) (Incorporated by and between Commvault and Ashling Development, LLC with an effective date of January 31, 2023reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022) |
| Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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*Certain exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted exhibit will be furnished as a supplement to the Securities and Exchange Commission upon request. Furnished herewith |
** Furnished herewithManagement contract or compensatory plan or arrangement |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | Commvault Systems, Inc. |
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Dated: | January 31,November 1, 2023 | | By: | /s/ Sanjay Mirchandani |
| | | | Sanjay Mirchandani |
| | | | Director, President and Chief Executive Officer |
| | | | (Principal Executive Officer) |
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Dated: | January 31,November 1, 2023 | | By: | /s/ Gary Merrill |
| | | | Gary Merrill |
| | | | Chief Financial Officer |
| | | | (Principal Financial Officer) |