Commvault CEO Sanjay Mirchandani is pleased with performance in the second fy21 quarter ended September 30. But the results show the company may have paid too much for Hedvig, a software-defined storage startup acquired in September 2019 for $225m.
Commvault has marked down its value with a $40.7m non-cash impairment charge, to record Q2 losses of $42m on a GAAP basis. However, the data management vendor generated $28.9m operating income on a non-GAAP basis, up 16.9 per cent on last year, on revenues $171.1m, up two per cent Y/Y. Next quarter’s outlook is for revenues between $174m and $176m – about the same as the same quarter last year.
Other highlights include:
- Total recurring revenue was $129.1m, an increase of 6 per cent Y/Y.
- Software and products revenue was $72.3m, up 5 per cent.
- Services revenue was $98.8m, flat Y/Y as perpetual license customers moved to subscription pricing,
- Operating cash flow was $27.m, up 12.5 per cent.
- Operating margin up 2 per cent Y/Y.
- Total cash and short-term investments were $394m compared to $339.7m last quarter.
Mirchandani said: “We are pleased by this quarter’s solid financial performance and are on track to deliver continued growth and operating margin expansion. The Commvault portfolio has never been stronger.”
On the earnings call yesterday, CFO Brian Carolan said the impairment charge was made because “the revenue performance of the stand-alone Hedvig product… did not meet our initial assumptions.” But the Hedvig technology, “is absolutely strategic to our portfolio [and] was the primary motivation behind our acquisition.”
The HyperScale X product uses Hedvig technology and “will drive meaningful gross margin expansion on our HyperScale platform, and improve the overall customer experience,” Carolan said.
Subscriptions rising
Commvault is implementing a long-term switch to subscription pricing and this is beginning to have a positive effect on revenues. Carolan commented: “FY ’21 marks the first significant year of our subscription renewal cycle, which represents a positive inflection point for our business. We expect the renewal cycle will continue to be a revenue tailwind for the next several years.”
William Blair analyst Jason Ader wrote in a email newsletter that “Commvault is contending with competition from a number of rapidly growing startups (e.g., Cohesity, Rubrik, Druva, Clumio) and while new management has made strategic moves (e.g., Hedvig acquisition, sales reorganisation), the firm remains early in the process and additional hiccups could surface during the transition. [But] overall, we are gradually gaining confidence in Commvault’s ability to execute and grow in the highly competitive data protection market.”.
Commvault has a cloud-first strategy, with its Metallic offerings leading the way. Mirchandani said the volume of Commvault customer data moving to the public cloud was growing at double digit rates quarter on quarter. Metallic is looking golden.
Mirchandani also noted ransomware attacks are at an all-time high: “In September alone, our customer success team performed more than 1,000 business critical restores worldwide for our customers following ransomware and malware attacks.”
