Data backup provider Commvault (NASDAQ:CVLT) reported Q1 FY2023 results beating Wall St's expectations, with revenue up 7.93% year on year to $197.9 million. Commvault Systems made a GAAP profit of $3.51 million, down on its profit of $13.8 million, in the same quarter last year.
Commvault Systems (CVLT) Q1 FY2023 Highlights:
- Revenue: $197.9 million vs analyst estimates of $195.2 million (1.41% beat)
- EPS (non-GAAP): $0.64 vs analyst estimates of $0.63 (1.12% beat)
- Free cash flow of $21.5 million, down 75% from previous quarter
- Gross Margin (GAAP): 82.9%, down from 86.2% 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.
As you can see below, Commvault Systems's revenue growth has been unimpressive over the last year, growing from quarterly revenue of $183.4 million, to $197.9 million.
Commvault Systems's quarterly revenue was only up 7.93% year on year, which would likely disappoint many shareholders. But the revenue actually decreased by $7.96 million in Q1, compared to $3.56 million increase in Q4 2022. If we take a closer look, we'll observe a similar revenue decline in the same quarter last year, which could suggest the decline is seasonal. However, the management is guiding for a further drop in revenue in the next quarter, so it is definitely worth keeping an eye on the situation.
Ahead of the earnings results the analysts covering the company were estimating sales to grow 6.74% over the next twelve months.
Large Customers Growth
You can see below that at the end of the quarter Commvault Systems reported 184 enterprise customers paying more than $100,000 annually, a decrease of 42 on last quarter. We have no doubt shareholders would like to see the company regain its sales momentum.
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 82.9% in Q1.
That means that for every $1 in revenue the company had $0.82 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still 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.
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 $21.5 million in Q1, down 39.7% year on year.
Commvault Systems has generated $159 million in free cash flow over the last twelve months, an impressive 20.2% 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 Q1 Results
With a market capitalization of $2.74 billion Commvault Systems is among smaller companies, but its more than $258.7 million in cash and positive free cash flow over the last twelve months give us confidence that Commvault Systems has the resources it needs to pursue a high growth business strategy.
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, it seems to us that this was a complicated quarter for Commvault Systems. The company currently trades at $61.3 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 $73 per share right before these results, implying that they saw upside in buying Commvault Systems even in the short term.
To get the best start with StockStory check out our most recent Stock picks, and then sign up to our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds from the data being released, and especially for the companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.