Commvault Announces Fiscal 2018 Third Quarter Financial Results

— Record quarterly software and products revenue up 13% sequentially and total revenue up 7% sequentially —
— Excellent progress in shift toward subscription-based pricing models contributes to deferred revenue growth —
— Quarterly operating cash flows of $31.2 million, up 17% year over year —

Third Quarter Highlights Include:

(Download Financial Tables)

Tinton Falls, N.J. – Jan. 24, 2018 – Commvault [NASDAQ: CVLT] today announced its financial results for the third quarter ended Dec. 31, 2017.

N. Robert Hammer, Commvault’s Chairman, President and CEO stated, “We achieved record quarterly revenue of $180.4 million highlighted by sequential software and products revenue growth of 13% driven by an increase in EMEA enterprise revenue transactions, a 19% year over year increase in deferred revenue and a 17% year over year increase in operating cash flows.  We continue to make excellent progress with our subscription based pricing models, which represents approximately 20% of our year to date software revenue, more than double our historical run rate. We also successfully launched our Commvault HyperScale™ Appliance and Commvault HyperScale™ Software, which we believe are resonating with customers and partners and will begin to meaningfully impact our results in fiscal 2019.  We are focused on executing a solid fiscal fourth quarter to build a stronger foundation for revenue and earnings growth in fiscal 2019.  Finally, we remained opportunistic during the third fiscal quarter, repurchasing $80 million of our common stock.”
Total revenues for the third quarter of fiscal 2018 were $180.4 million, an increase of 8% year-over-year, and 7% sequentially.  Software and products revenue was $81.4 million, an increase of 4% year-over-year, and 13% sequentially.  Services revenue in the quarter was $98.9 million, an increase of 12% year-over-year and 3% sequentially.

On a GAAP basis, income from operations (EBIT) was $3.5 million for the third quarter compared to $3.8 million in the prior year.  Non-GAAP EBIT was $22.0 million in the quarter compared to $23.7 million in the prior year.

For the third quarter of fiscal 2018, Commvault reported a GAAP net loss of $58.9 million, or $1.30 loss per diluted share.  In the quarter, Commvault recorded approximately $59.0 million of non-cash income tax charges related to the combined impact of the lower US corporate income tax rate on deferred tax assets and recording a valuation allowance against the remaining value of deferred tax assets.  Non-GAAP net income for the quarter was $14.1 million, or $0.30 per diluted share. Commvault measured itself to non-GAAP tax rates of 37% in fiscal 2017 and will continue to measure itself to a non-GAAP tax rate of 37% in fiscal 2018.  Commvault is analyzing the longer term impacts of the recent U.S. income tax reform and currently expects that in fiscal 2019 it will reduce its non-GAAP tax rate to approximately 27% which should align with Commvault’s expected long-term cash tax rate.  Additional details regarding Commvault’s non-GAAP tax rate are provided in the “Non-GAAP net income and non-GAAP diluted EPS” section below.

Operating cash flow totaled $31.2 million for the third quarter of fiscal 2018 compared to $26.8 million in the prior year quarter.  Total cash and short-term investments were $445.5 million as of Dec. 31, 2017 compared to $450.2 million as of March 31, 2017.

During the third quarter of fiscal 2018, Commvault repurchased approximately 1.5 million shares of its common stock totaling $80.1 million. On Jan. 17, 2018, the Board of Directors extended the expiration date of the share repurchase program to March 31, 2019 and authorized a $100.0 million increase to the existing share repurchase program so that $133.7 million is now available.  There have been no borrowings against the line of credit during fiscal 2018.

A reconciliation of GAAP to non-GAAP results has been provided in Financial Statement Table IV included in this press release. (Download Financial Tables)

An explanation of these measures is also included below under the heading “Use of Non-GAAP Financial Measures.”

Recent Business Highlights:

• Commvault GO 2017, Commvault’s annual customer event, was held Nov. 6-8, 2017 in Washington D.C., with an agenda that included more than 95 breakout, 30 mini theater and 25 structured lab speaking sessions, as well as industry-specific and other expert-led learning sessions. The conference, which grew significantly from the previous year, offered business leaders a unique opportunity to explore how they can protect, manage and activate data to unlock new business opportunities and address some of today’s most pressing data challenges, with presentations by industry thought leaders, customers, and partners, including executives from Commvault, Google, Microsoft and Cisco.  At the conference, Commvault announced a new analytics portfolio of applications, capabilities, solutions and services, all built on the Commvault Data Platform. The platform is designed to help customers have access to the right data and analytics in order to gain the insights needed to improve business outcomes.
• On Nov. 7, 2017, Commvault announced a new strategic partnership with Google Cloud to help enterprises leverage the range of cloud services available on one of the industry’s fastest growing cloud platforms, Google Cloud Platform™. The partnership was highlighted at Commvault GO 2017 with a keynote delivered by Google executive Adam Massey on how this new relationship addresses the increasing need for data protection for fast growing multi-cloud, hybrid IT environments requiring flexibility, security, high data availability and business agility.
• On Nov. 7, 2017, Commvault launched Commvault Endpoint Data Protection as a Service to simplify and streamline the backup and recovery of corporate data stored on laptops, desktops and other devices in one flexible, easy-to-use software as a service (SaaS) offering. Fully managed by Commvault in the cloud with 24/7 customer support, Commvault Endpoint Data Protection as a Service eliminates the need for in-house infrastructure installation and reduces application management resources.
• On Oct. 25, 2017, Commvault was named a winner in the Disaster recovery/business continuity solution category at NetworkWorld Asia’s 2017 Readers’ Choice/Rising Star Awards. The 12th Readers’ Choice Product Excellence Awards recognizes both established and new solution providers that have made the most impact on Asian end-user organizations. Commvault has been recognized for the best solution in getting organizations back up and continuously running after a disaster or downtime, based on votes from qualified readers of NetworkWorld Asia, Asia Cloud Forum, Security Asia and Storage Asia.
• On Oct. 24, 2017, Commvault announced ScaleProtect™ with Cisco UCS, a powerful unique scale-out data protection solution combining Commvault HyperScale™ Software with Cisco’s Unified Computing System (UCS).  ScaleProtect™ with Cisco UCS provides enterprises a single, integrated solution that delivers infrastructure simplicity, elasticity, resiliency, flexibility and scale for managing secondary data, while replacing legacy back-up tools with a modern cloud-enabled data management solution.  As the first solution launched as a Commvault HyperScale™ Software reference architecture, and is available to customers directly from Cisco’s Global Price List, making it easy for Cisco and its powerful network of resellers to sell and deliver to the market.
• On Oct. 17, 2017, Commvault launched Commvault HyperScaleTM Appliance and Commvault HyperScaleTM Software, two powerful, cloud-ready data infrastructure offerings that provide customers with on-premises simplicity, elasticity, resiliency, flexibility and scale for managing secondary data. Commvault’s HyperScale Technology brings scale-out infrastructure to the Commvault Data in support of true hybrid IT environments, Commvault HyperScale Technology is uniquely positioned in the market to protect and securely move workloads across any type of infrastructure including public cloud, private cloud and on-premises.  Initial program participants in the reference architecture software program include:  Fujitsu, Cisco, Lenovo, HPE, Super Micro Computer, Huawei and Dell-EMC.

Use of Non-GAAP Financial Measures

These non-GAAP financial measures exclude noncash stock-based compensation charges and additional FICA and related payroll tax expense incurred by Commvault when employees exercise in the money stock options or vest in restricted stock awards. Commvault believes that these non-GAAP financial measures are useful metrics for management and investors because they compare Commvault’s core operating results over multiple periods.  When evaluating the performance of Commvault’s operating results and developing short and long term plans, Commvault does not consider such expenses.  Although noncash stock-based compensation and the additional FICA and related payroll tax expenses are necessary to attract and retain employees, Commvault places its primary emphasis on stockholder dilution as compared to the accounting charges related to such equity compensation plans.  In addition, because of the varying available valuation methodologies, subjective assumptions such as volatility, which are outside of Commvault’s control and the variety of awards that companies can issue, Commvault believes that providing non-GAAP financial measures that exclude noncash stock-based compensation expense and the additional FICA and related payroll tax expenses incurred on stock option exercises and vesting of restricted stock awards allow investors to make meaningful comparisons between Commvault’s operating results and those of other companies.

There are a number of limitations related to the use of non-GAAP income from operations and non-GAAP income from operations margin.  The most significant limitation is that these non-GAAP financial measures exclude certain operating costs, primarily related to noncash stock-based compensation, which is of a recurring nature.  Noncash stock-based compensation has been, and will continue to be for the foreseeable future, a significant recurring expense in Commvault’s operating results.  In addition, noncash stock-based compensation is an important part of Commvault’s employees’ compensation and can have a significant impact on their performance.  Lastly, the components Commvault excludes in its non-GAAP financial measures may differ from the components that its peer companies exclude when they report their non-GAAP financial measures.

Commvault’s management generally compensates for limitations described above related to the use of non-GAAP financial measures by providing investors with a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure. Further, Commvault management uses non-GAAP financial measures only in addition to, and in conjunction with, results presented in accordance with GAAP. (Download Financial Tables)

Non-GAAP income from operations and non-GAAP income from operations margin.

These non-GAAP financial measures exclude noncash stock-based compensation charges and additional FICA and related payroll tax expense incurred by Commvault when employees exercise in the money stock options or vest in restricted stock awards. Commvault believes that these non-GAAP financial measures are useful metrics for management and investors because they compare Commvault’s core operating results over multiple periods.  When evaluating the performance of Commvault’s operating results and developing short and long term plans, Commvault does not consider such expenses.  Although noncash stock-based compensation and the additional FICA and related payroll tax expenses are necessary to attract and retain employees, Commvault places its primary emphasis on stockholder dilution as compared to the accounting charges related to such equity compensation plans.  In addition, because of the varying available valuation methodologies, subjective assumptions such as volatility, which are outside of Commvault’s control and the variety of awards that companies can issue, Commvault believes that providing non-GAAP financial measures that exclude noncash stock-based compensation expense and the additional FICA and related payroll tax expenses incurred on stock option exercises and vesting of restricted stock awards allow investors to make meaningful comparisons between Commvault’s operating results and those of other companies.

There are a number of limitations related to the use of non-GAAP income from operations and non-GAAP income from operations margin.  The most significant limitation is that these non-GAAP financial measures exclude certain operating costs, primarily related to noncash stock-based compensation, which is of a recurring nature.  Noncash stock-based compensation has been, and will continue to be for the foreseeable future, a significant recurring expense in Commvault’s operating results.  In addition, noncash stock-based compensation is an important part of Commvault’s employees’ compensation and can have a significant impact on their performance.  Lastly, the components Commvault excludes in its non-GAAP financial measures may differ from the components that its peer companies exclude when they report their non-GAAP financial measures.

Commvault’s management generally compensates for limitations described above related to the use of non-GAAP financial measures by providing investors with a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure. Further, Commvault management uses non-GAAP financial measures only in addition to, and in conjunction with, results presented in accordance with GAAP.

Non-GAAP net income and non-GAAP diluted EPS. Non-GAAP net income excludes noncash stock-based compensation, the additional FICA and related payroll tax expenses incurred by Commvault when employees exercise in the money stock options or vest in restricted stock awards.  Commvault has also excluded its share of earnings or loss from its equity method investment. In addition, non-GAAP net income and non-GAAP diluted EPS incorporate a non-GAAP effective tax rate of 37% in fiscal 2018 and fiscal 2017.

Commvault anticipates that in any given period its non-GAAP tax rate may be either higher or lower than the GAAP tax rate as evidenced by historical fluctuations. On an annual basis, the GAAP tax rate was 37% for fiscal 2014 and 34% for fiscal 2015.  The GAAP tax rates for fiscal 2016, 2017 and fiscal 2018 are not meaningful percentages due to the dollar amount of GAAP pre-tax income.  In addition, during the third quarter of fiscal 2018, Commvault recorded non-cash income tax charges related to the combined impact of the lower US corporate income tax rate on deferred tax assets and recording a valuation allowance against the remaining value of deferred tax assets.

From a cash tax perspective, the cash tax rate is estimated to be 18% for fiscal 2014 and 26% for fiscal 2015.  For the same reason as the GAAP tax rates, the estimated cash tax rates for fiscal 2016, 2017 and fiscal 2018 are not meaningful percentages.  Estimated cash taxes for fiscal 2017 were approximately $5 million.  Estimated cash taxes for fiscal 2018 and 2019 are expected to be in the $6 million to $7 million range per year and related primarily to Commvault’s international operations.  Commvault defines its cash tax rate as the total amount of cash income taxes payable for the fiscal year divided by consolidated GAAP pre-tax income. Over time, Commvault believes its GAAP and cash tax rates will align.

Commvault measured itself to non-GAAP tax rates of 37% in fiscal 2017 and will continue to measure itself to a non-GAAP tax rate of 37% in fiscal 2018.  Commvault is analyzing the longer term impacts of the recent U.S. income tax reform and currently expects that in fiscal 2019 it will reduce its non-GAAP tax rate to approximately 27% which should align with Commvault’s expected long-term cash tax rate.

Commvault considers non-GAAP net income and non-GAAP diluted EPS useful metrics for Commvault management and its investors for the same basic reasons that Commvault uses non-GAAP income from operations and non-GAAP income from operations margin. In addition, the same limitations as well as management actions to compensate for such limitations described above also apply to Commvault’s use of non-GAAP net income and non-GAAP EPS.

Conference Call Information
Commvault will host a conference call today, Jan. 24, 2018, at 8:30 a.m. EST (5:30 a.m. PST) to discuss its financial results.  To access this call, dial 844-742-4247 (domestic) or 661-378-9470 (international).  Investors can also access the webcast by visiting www.commvault.com. The live webcast and replay will be hosted under the “Events” section of the website. An archived webcast of this conference call will also be available following the call.

About Commvault

Commvault is a leading provider of data protection and information management solutions, helping companies worldwide activate their data to drive more value and business insight and to transform modern data environments. With solutions and services delivered directly and through a worldwide network of partners and service providers, Commvault solutions comprise one of the industry’s leading portfolios in data protection and recovery, cloud, virtualization, archive, file sync and share. Commvault has earned accolades from customers and third party influencers for its technology vision, innovation, and execution as an independent and trusted expert. Without the distraction of a hardware business or other business agenda, Commvault’s sole focus on data management has led to adoption by companies of all sizes, in all industries, and for solutions deployed on premise, across mobile platforms, to and from the cloud, and provided as-a-service. Commvault employs more than 2,500 highly skilled individuals across markets worldwide, is publicly traded on NASDAQ (CVLT), and is headquartered in Tinton Falls, New Jersey in the United States. To learn more about Commvault — and how it can help make your data work for you — visit commvault.com.

Safe Harbor Statement
This press release may contain forward-looking statements, including statements regarding financial projections, which are subject to risks and uncertainties, such as competitive factors, difficulties and delays inherent in the development, manufacturing, marketing and sale of software products and related services, general economic conditions, outcome of litigation and others.  For a discussion of these and other risks and uncertainties affecting Commvault’s business, see “Item IA. Risk Factors” in our annual report in Form 10-K and “Item 1A. Risk Factors” in our most recent quarter report in Form 10-Q. Statements regarding Commvault’s beliefs, plans, expectations or intentions regarding the future are forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.  All such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Actual results may differ materially from anticipated results.  Commvault does not undertake to update its forward-looking statements.  The development and timing of any product release as well as any of its features or functionality remain at our sole discretion.

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