Commvault Systems (NASDAQ:CVLT) Surprises With Q4 Sales

Full Report / June 29, 2022
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Data backup provider Commvault (NASDAQ:CVLT) reported Q4 FY2022 results topping analyst expectations, with revenue up 7.63% year on year to $205.9 million. Commvault Systems made a GAAP profit of $7.98 million, improving on its profit of $6.26 million, in the same quarter last year.

Commvault Systems (CVLT) Q4 FY2022 Highlights:

  • Revenue: $205.9 million vs analyst estimates of $201.9 million (1.96% beat)
  • EPS (non-GAAP): $0.75 vs analyst estimates of $0.64 (18.1% beat)
  • Free cash flow of $86.5 million, up from $25.4 million in previous quarter
  • Customers: 226 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 84.4%, 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 Systems's revenue growth has been unimpressive over the last year, growing from quarterly revenue of $191.3 million, to $205.9 million.

Commvault Systems Total Revenue

Commvault Systems's quarterly revenue was only up 7.63% year on year, which would likely disappoint many shareholders. But the growth did slow down compared to last quarter, as the revenue increased by just $3.56 million in Q4, compared to $24.5 million in Q3 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Large Customers Growth

You can see below that at the end of the quarter Commvault Systems reported 226 enterprise customers paying more than $100,000 annually, an increase of 1 on last quarter. That is a bit less contract wins than last quarter and also below what we have typically seen over the past couple of quarters, suggesting that the sales momentum with large customers is slowing down.

Commvault Systems 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 Systems'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 84.4% in Q4.

Commvault Systems Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.84 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like Commvault Systems to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that Commvault Systems is doing a good job controlling costs and is not under pressure from competition to lower prices.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Commvault Systems's free cash flow came in at $86.5 million in Q4, up 38.3% year on year.

Commvault Systems Free Cash Flow

Commvault Systems has generated $173.2 million in free cash flow over the last twelve months, an impressive 22.5% of revenues. This extremely high FCF margin is a result of Commvault Systems asset lite business model and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from Commvault Systems's Q4 Results

With a market capitalization of $2.7 billion Commvault Systems is among smaller companies, but its more than $267.5 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

Commvault Systems topped analysts’ revenue expectations this quarter, even if just narrowly. That feature of these results really stood out as a positive. On the other hand, it was less good to see that the revenue growth was quite weak. Overall, this quarter's results could have been better. The company currently trades at $63.3 per share.

Is Now The Time?

Commvault Systems may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think Commvault Systems is a solid business. However, its revenue growth has been very weak, and analysts believe that rate will remain roughly steady. But on a positive note, its impressive gross margins are indicative of excellent business economics, and its very efficient customer acquisition hints at the potential for strong profitability.

Commvault Systems's price to sales ratio based on the next twelve months is 3.4x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. There are definitely things to like about Commvault Systems and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.

The Wall St analysts covering the company had a one year price target of $77 per share right before these results, implying that they saw upside in buying Commvault Systems even in the short term.

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