Commvault (NASDAQ:CVLT) Reports Q2 Results

Full Report / December 15, 2021
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Data backup provider Commvault (NASDAQ:CVLT) missed analyst expectations in Q2 FY2022 quarter, with revenue up 3.91% year on year to $177.8 million. Commvault made a GAAP profit of $1.73 million, improving on its loss of $41.1 million, in the same quarter last year.

Commvault (CVLT) Q2 FY2022 Highlights:

  • Revenue: $177.8 million vs analyst estimates of $184.7 million (3.75% miss)
  • EPS (non-GAAP): $0.48 vs analyst expectations of $0.57 (15.7% miss)
  • Free cash flow of $25.5 million, down 28.6% from previous quarter
  • Gross Margin (GAAP): 85%, in line with same quarter last year

Originally formed in 1988 as part of Bell Labs, Commvault (NASDAQ:CVLT) provides enterprise software used for data backup and recovery, cloud and infrastructure management, retention and compliance.

In today’s digital economy, companies rely on data to predict customer behavior, guide operational efficiency, and drive corporate strategy. The trouble is, your data grows, morphs, and fragments – digital bits and bytes in a constant state of movement and evolution. And data moves from on premise data centers to the cloud and back. Corporate data needs to be protected in case of disasters or from cyber criminals. And it needs to be done in a cost effective and easy to use manner.

Commvault Intelligent Data Services help enterprises drive greater efficiency by transforming how they protect, store, and use data. Commvault’ offerings are organized into three categories - Data Protection, Data Insights and more recently Storage. All of its products operate through a single simple to use interface on the Commvault Command Center, where IT professionals identify content and data they want to protect, and run automated backups. In 2020 Commvault acquired Hedvig and Metallic to expand their storage capabilities to include public cloud architectures, containers, and virtual machines.

Data is the lifeblood of the internet and software in general, and the amount of data created is growing at an accelerating pace. Likewise, the importance of storing the data in scalable and efficient formats continues to rise, especially as the diversity of the data and associated use cases expand from analyzing simple, structured data to high-scale processing of unstructured data, images, audio and video.

Commvault’s public competitors include IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT), and VMware (NYSE:VMW) while its private company rivals include Cohesity, Rubrik, Veeam, Veritas Technologies, Arcserve, and Acronis.

Sales Growth

As you can see below, Commvault's revenue growth has been slow over the last year, growing from quarterly revenue of $171.1 million, to $177.8 million.

Commvault Total Revenue

Commvault's quarterly revenue was only up 3.91% year on year, which would likely disappoint many shareholders. But the revenue actually decreased again in Q2 by $5.58 million, compared to $7.92 million decrease in Q1 2022. While one-off fluctuations don't always have to be concerning, we have no doubt that shareholders would like to see the revenue rebound soon.

Analysts covering the company are expecting the revenues to grow 7.52% over the next twelve months.

Large Customers Growth

You can see below that at the end of the quarter Commvault reported 163 enterprise customers paying more than $100,000 annually, a decrease of 22 on last quarter. We have no doubt shareholders would like to see the company regain its sales momentum.

Commvault customers paying more than $100,000 annually


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Commvault's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 85% in Q2.

Commvault Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.85 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop that is still a great gross margin, that allows companies like Commvault to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Commvault's Q2 Results

With a market capitalization of $3.01 billion Commvault is among smaller companies, but its more than $295.8 million in cash and positive free cash flow over the last twelve months give us confidence that Commvault has the resources it needs to pursue a high growth business strategy.

We struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that Commvault missed analysts' revenue expectations and the revenue growth was quite weak. Overall, this quarter's results could have been better. The company currently trades at $66.15 per share.

Is Now The Time?

Commvault may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. Although we have other favorites, we understand the arguments that Commvault is not a bad business. However, its revenue growth has been very weak. But on a positive note, its impressive gross margins are indicative of excellent business economics.

Commvault's price to sales ratio based on the next twelve months is 4.0x, suggesting that the market is expecting more moderate growth, relative to the hottest tech stocks. In the end, beauty is in the eye of the beholder. While Commvault wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.

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