Commvault Systems (NASDAQ:CVLT) Q4: Beats On Revenue But Contract Wins Slow Down

Full Report / May 02, 2023
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Data backup provider Commvault (NASDAQ:CVLT) reported Q4 FY2023 results beating Wall St's expectations, with revenue down 1.2% year on year to $203.5 million. Commvault Systems made a GAAP loss of $43.5 million, down on its profit of $7.99 million, in the same quarter last year.

Commvault Systems (CVLT) Q4 FY2023 Highlights:

  • Revenue: $203.5 million vs analyst estimates of $197 million (3.29% beat)
  • EPS (non-GAAP): $0.73 vs analyst estimates of $0.62 (17.5% beat)
  • Free cash flow of $66.8 million, up 127% from previous quarter
  • Gross Margin (GAAP): 82.9%, down from 84.4% 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 two years, growing from quarterly revenue of $191.3 million in Q4 FY2021, to $203.5 million.

Commvault Systems Total Revenue

But this quarter Commvault Systems's revenue was down 1.2% year on year, which might be a disappointment to some shareholders.

Large Customers Growth

You can see below that at the end of the quarter Commvault Systems reported 187 enterprise customers paying more than $100,000 annually, a decrease of 19 on last quarter. We have no doubt shareholders would like to see the company regain its sales momentum.

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 82.9% in Q4.

Commvault Systems Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.83 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 have followed 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 $66.8 million in Q4, down 22.8% year on year.

Commvault Systems Free Cash Flow

Commvault Systems has generated $167 million in free cash flow over the last twelve months, an impressive 21.3% 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 $2.6 billion Commvault Systems is among smaller companies, but its more than $287.8 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.

It was good to see Commvault Systems outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, revenue growth was quite weak and there was a slowdown in new contract wins. Overall, it seems to us that this was a complicated quarter for Commvault Systems. The company is flat on the results and currently trades at $58.35 per share.

Is Now The Time?

When considering Commvault Systems, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. Although we have other favorites, we understand the arguments that Commvault Systems is not a bad business. However, its revenue growth has been very weak, and analysts expect growth rates to deteriorate from there. But on a positive note, its impressive gross margins are indicative of excellent business economics.

Commvault Systems's price to sales ratio based on the next twelve months is 3.3x, suggesting that the market is expecting more moderate growth, relative to the hottest tech stocks. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Commvault Systems doesn't trade at a completely unreasonable price point.

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