Data backup provider Commvault (NASDAQ:CVLT) reported results in line with analysts' expectations in Q1 FY2024, with revenue flat year on year at $198.2 million. The company also expects next quarter's revenue to be around $195 million, roughly in line with analysts' estimates. Commvault Systems made a GAAP profit of $12.6 million, improving from its profit of $3.51 million in the same quarter last year.
Commvault Systems (CVLT) Q1 FY2024 Highlights:
- Revenue: $198.2 million vs analyst estimates of $197.2 million (small beat)
- EPS (non-GAAP): $0.72 vs analyst estimates of $0.64 (12% beat)
- Revenue Guidance for Q2 2024 is $195 million at the midpoint, roughly in line with what analysts were expecting
- Free Cash Flow of $37.9 million, down 43.3% from the previous quarter
- Gross Margin (GAAP): 82.1%, down from 82.9% in the 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 over the last two years, growing from $183.4 million in Q1 FY2022 to $198.2 million this quarter.
Commvault Systems's quarterly revenue was only up 0.09% year on year, which isn't particularly great. On top of that, the company's revenue actually decreased by $5.33 million in Q1 compared to the $8.4 million increase in Q4 2023. This situation is worth monitoring as Commvault Systems's sales have historically followed a seasonal pattern but management is guiding for a further revenue drop in the next quarter.
Next quarter's guidance suggests that Commvault Systems is expecting revenue to grow 3.69% year on year to $195 million, slowing down from the 5.75% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 4.48% over the next 12 months.
Profitability
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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 82.1% in Q1.
That means that for every $1 in revenue the company had $0.82 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite its recent drop, Commvault Systems still has an excellent gross margin that allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Commvault Systems's free cash flow came in at $37.9 million in Q1, up 75.7% year on year.
Commvault Systems has generated $183.4 million in free cash flow over the last 12 months, an impressive 23.3% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.
Key Takeaways from Commvault Systems's Q1 Results
With a market capitalization of $3.43 billion, Commvault Systems is among smaller companies, but its $274.6 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
Revenue was relatively in line, as was guidance for the next quarter. The company also reconfirmed guidance for the full year that was previously given, so overall it was a quarter with no major surprises good or bad. It does show that the company is staying on track. The stock is down 2.54% after reporting, trading at $76 per share.
Key Takeaways from Commvault Systems's Q1 Results
With a market capitalization of $3.43 billion, Commvault Systems is among smaller companies, but its $274.6 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
This was mainly an in-line quarter for CVLT. It was good to see strong free cash flow, on the other hand, its guidance for next quarter was a little concerning. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. Investors were likely expecting more, and the stock is down 2.54% after reporting, trading at $76 per share.
Is Now The Time?
When considering an investment in Commvault Systems, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter. We cheer for everyone who's making the lives of others easier through technology but in case of Commvault Systems, we'll be cheering from the sidelines. Its revenue growth has been very weak. And while its impressive gross margins are indicative of excellent business economics, unfortunately customer acquisition is less efficient than many comparable companies.
Commvault Systems's price to sales ratio based on the next 12 months is 4.3x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.
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