Good morning. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Commvault Second Quarter Fiscal Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, we will have a question-and-answer session. [Operator Instructions] Thank you. I will now turn the conference over to Michael Melnyk, Head of Investor Relations. You may begin.

Good morning, and welcome to our earnings conference call. I'm Michael Melnyk, Head of Investor Relations, and I'm joined by Sanjay Mirchandani, Commvault's CEO; and Gary Merrill, Commvault's CFO. An earnings presentation with key financial and operating metrics is posted on the Investor Relations website for your reference. Statements made on today's call will include forward-looking statements about Commvault, future expectations, plans and prospects. All such forward-looking statements are subject to risks, uncertainties and assumptions. Please refer to the cautionary language in today's earnings release and Commvault's most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in these forward-looking statements. Commvault does not assume any obligation to update these statements. During this call, Commvault's financial results are presented on a non-GAAP basis. A reconciliation between non-GAAP and GAAP measures can be found on our website. Thank you again for joining us. Now I'll turn it over to Sanjay for his opening remarks. Sanjay?

Thank you, Mike. Good morning, everyone, and thanks for joining us today. I am pleased to report our Q2 results exceeded expectations, and we improved across our most important KPIs. Total ARR, the primary metric we use to measure underlying growth accelerated 18% year-over-year to $711 million. Subscription ARR grew 32% year-over-year to $530 million and is now nearly 75% of total ARR. SaaS momentum accelerated with Metallic ARR, up 77% year-over-year to $131 million. Metallic-SaaS net dollar retention rebounded to an impressive 130%. And we delivered improved profitability while continuing to return cash to shareholders through share repurchases. Beyond these impressive financial results, we also received numerous industry accolades, including being named the leader for the 12th consecutive time in the 2023 Gartner Magic Quadrant. We also ranked highest in six of seven categories in Gartner's latest critical capabilities for enterprise backup and recovery software solutions report. And once again, GigaOm named us a Leader and an Outperformer in its most recent GigaOm Radar for Hybrid Cloud Data Protection for Large Enterprises. We're extremely proud of this recognition. We're laser-focused on being a trusted partner to our customers by protecting their data from the threats of cyber threats, significantly reducing ramp at hybrid class complexity and infusing AI-enabled automation to tackle new and evolving data protection and security challenges. And we're just getting started. Next week, at our Commvault Shift Customer and Partner event, we will highlight how we are shifting from data protection to leading the charge in cyber resilience. We're going to introduce a radically new approach that empowers customers to stand up to today's nonstop and escalating cyber threats. We're bringing together what we're known for best-in-class data protection and combining it with exceptional data security, recovery and -driven data intelligence. Cyber resilience like this has…

Thanks, Sanjay, and good morning, everyone. I am pleased to report that our strong revenue and earnings outperformance in Q2 was driven by acceleration across our key KPIs during the quarter. Q2 total revenue was $201 million, an increase of 7% year-over-year. Our total revenue growth was led by subscription revenue of $98 million, an increase of 25% year-over-year. As a reminder, subscription revenue includes both our term software licenses and our SaaS offerings. We saw double-digit growth in term software licenses combined with an accelerating contribution of SaaS revenue, which was up over 80% year-over-year. Subscription revenue is now approaching 50% of total revenue compared to 42% one year ago. Term software license growth was driven by strong performance in renewals and its existing customer expansion during the quarter, with our subscription net dollar retention remaining within its historical range. Overall term software deal volume increased year-over-year driven by continued improvements in our philosophy motion. Q2 perpetual license revenues were $14 million. As a reminder, our go-to-market motion is led by subscription. So perpetual license license sales are generally sold in certain verticals and geographies. At the current perpetual license revenue run rate, we believe the headwind to our reported total revenue growth from these perpetual license sales to start to normalize as we exit the current fiscal year. Q2 customer support revenue was $77 million, which includes support for both our term-based and perpetual software licenses. Fiscal year 2024, customer support revenue had benefited from fewer conversions of perpetual support contracts to term software licenses compared to prior year. Year-to-date, customer support revenue from perpetual licenses represents 55% of total customer support, with the balance coming from term software licenses. This compares to approximately 60% in fiscal year 2023 and 70% in fiscal year 2022. At this trajectory,…

Yes. Thanks for taking the question. Congratulations on the execution in the quarter. I guess my question is, just help me understand a little bit more. It looks like clearly, your ARR updated guidance is a little bit lower than your prior guide, 24%. On the subscription side, I should say, relative to 27. And then obviously, revenue a little bit lower at the midpoint. Can you just -- I know you made some comments in your prepared remarks, but could you unpack that change in the guidance a little bit further?

Hey, Aaron, it's Gary. Good to talk to you this morning. And I think specifically, I think you're asking about Q3, the Q3 outlook or the full year outlook first. Let me just clarify you are asking.

Yes, I'm talking more full year, the 24% versus prior 27 in the $408 million to $418 million versus the prior $420 million to $430 million.

Got it. Okay. Awesome. Well, first of all, let me just reflect a little bit on the first half. We're really pleased with the first half, especially where we ended up at fiscal Q2 on all of our guided metrics, making sure we accelerated past everything. From a full year perspective, as kind of I thought about the second half in particular, coming off of the first half. I'm also pleased that we did raise our ARR guidance. Previously we -- we're guiding to 13 instead of that to 14 as well as our total revenue also increasing our guidance on total revenue. A lot of that is reflective of a lot of the success even we're seeing on the SaaS business as well, right? When we drive that SaaS -- that SaaS success, and we're able to hit $131 million of ARR. A lot of that does not show up in reported revenue or reported revenue expectations. But as I think about the subscription revenue specifically, I think, directly at your question, there's a couple of things that are going on there. We are seeing fewer conversions, so conversions from our existing perpetual support contracts being converted to term software licenses. In today's interest rate environment, those conversions usually come with a multiyear commitment, doing a three-year commitment and some of the interest rate factors and the cost of money as well as where customers are in their cloud journey at the same time. So we're seeing just some declines year-over-year modestly on the conversion fees as well as the continued trends on term subscription length. So when we sell term subscriptions, our average term is now down to about two years. So while that keeps ARR total, and we see the momentum on ARR, it could have a little bit of a short-term impact on the reported revenue results And then thirdly, just keeping in mind that we're watching the mega deal, the real big deal trends in the spending environment and being cautious on the procurement and approval cycles that are out there today.

Yes. That's very helpful. I appreciate that color. So maybe just the final question, sticking with that topic. How would you characterize the linearity in this quarter, the demand? Have you seen any customers push out projects or delay spending in this environment at this point, or is it just more cautionary on the macro, the geopolitical environment as more so we look forward?

More cautionary. We do not see trends that deteriorated. Our trends that we're seeing in the business on close rates and linearity are consistent with what we've seen over the past few quarters. But relative to the geopolitical nature of what's going on and just being cautionary on the time it takes to close some of those big deals.

Thank you, Gary

Your next question comes from the line of Howard Ma from Guggenheim Securities. Please go ahead.

Great. Thank you for taking the question. So I also want to better understand the lower subscription ARR and revenue guidance because that seems to be the only negative in an otherwise stellar print. Is the -- so I understand the change in -- the lower migrations from perpetual maintenance to subscription, I didn't think the impact was that big. Can you comment -- I guess for Gary, can you comment, are there any other factors such as -- I mean did you -- were there any deal pull forwards in Q2? Are you like in the back half, are you expecting any renewal push outs? Because I believe this year, it's a pretty back-end weighted -- or second half weighted rather renewal year. And then just given the Metallic strength, too, I wouldn't -- wouldn't continued strength in Metallic at least on the ARR side, I understand it takes time for ARR to transit over to revenue, but wouldn't that offset some of the perpetual migrations? Thanks.

Yes. Thanks, Howard. Maybe first, quickly on the SaaS side of the Metallics. So the ARR accelerated actually higher than we've seen in current periods, right? If you look at the ARR for SaaS, we went from $113 million to $131 million of ARR. That sequential increase we're seeing on the SaaS side is accelerating faster than we'd actually seen over the past prior quarters. So, you can kind of see that as you turned out the SaaS ARR and the acceleration there, coupled with Howard, the -- what we saw on the net salary retention rate of 130%. So, really a good focus on driving that net dollar retention. When I look at the guidance on subscription, it's -- the biggest factor is fewer conversions and how you can see that also is you'll see the strong overperformance on the customer support side, right? So if you look at the custom support revenue, and you see the acceleration there, meaning the acceleration relative to the prior expectations, that's where you kind of see -- that's where you see the offset. And that's where you see the offset on the positive side there. And it's just the fewer conversions we're doing about -- on pay for about half of what we did last year is what I kind of see just based on current pipeline metrics, we're on basically about half of the conversions that we did last year, which is just a transitional in the customer environment as well as monitoring the term length of our deals, right? So, getting it down to about two years on average.

Hey Howard, it's Sanjay. We're just trying to be realistic given we're looking out for the whole year. If there's -- it's just a mix shift. In my mind, there's nothing -- we added, what, over 500 customers in the subscription mix in Q2. Metallic is growing at a very healthy clip. We grew 77% ARR year-on-year. So, this isn't -- don't read into this in anything, but we're just looking at the pipeline and being very pragmatic about what the mix shift might be and that's it. I mean business -- we had a very good quarter, and we've raised ARR for the year, and we've raised revenue for the year. So, it's in my mind, as straightforward as a mix shift inside of the customer buying patterns, whether it be interest rate or where they are in their cloud migration journey.

Thank you, Sanjay, and Gary. I do want to -- as a follow-up, I do want to hone in on Metallic because as you guys mentioned, it was a really strong quarter for Metallic and are accelerating to 130%, which is up from, I believe, 118% a quarter ago and then 125% is the quarter prior. Can you just remind us what is the rank order of drivers of growth for Metallic between workload expansion and cross-sell of additional Metallic products? And then on the growth rate, again, very strong, but it has been pretty variable. Is it -- should we expect this kind of variability going forward?

Hey Howard, it's Gary. I'll hit that. So, there's really good key things. The acceleration that we saw in Metallic's net dollar retention drove by a few things. There's the foundation, first of all, what I mean by the foundation is we're at the point now that we have a matured renewal motion. So, when we get that mature renewal motion and we see really strong renewal rates, it limits any of the downside on the net dollar retention. So, it's built with the foundation. And that foundation is really the focus on what we're doing on onboarding and adoption. So, driving to get the customers onboarded, get them to their first back up, get them fully adopted, then that drives the expansion opportunity. The other thing that we now have is an integrated motion between our customer success and our field sales teams. So, their customers' success teams are driving the adoption with the field teams combined driving the expansion. So, it all starts on accelerating the time to first back up and the time to consumption. As I think about the split between, I'll use cross-sell and upsell, we're seeing the majority of the expansion being driven by, at this point, upsell, which is generally more of the same product. However, we're now seeing more than 2x growth on some of those mission-critical or the emerging workloads that we see whether it's sales force dynamics, threatwise, hybrid cloud, databases. The dollar value of those are now up 2x year-over-year. So it's less of a contribution because it's less of a percent of the total, but the contribution now is starting to become material, even though the majority of it is driven by upsell. So we're getting it from all ends. Just in summary, we're getting that mature rental motion. We're getting the upsell, getting them adopted, so we can get expand on more of the same products. And now we're starting to see the cross-sell start to kick-in as well.

Okay. Thank you.

And Howard, I'd like to add a little bit on just overall, some color on the SaaS business. It is the driver of growth. It is growing well. It's a vehicle by which we land hundreds of new customers a quarter. Our security capabilities that we've integrated the Security IT, which is our delivery platform inside of Metallic for our customers is doing well. Gary talked about the go-to-market capabilities. And we're investing for the future with mission-critical workloads. We thought -- I quoted -- I think it was Giga [ph] that talked in this one report about having -- we had more hyper cloud and more mission-critical workloads out there, there are two TVs to compete. It's -- you have to be one step ahead of the customer. You have to be ready for the workhouse they want to protect. And that is exactly what we've been doing. And we -- the NRR, we sort of -- we mentioned last quarter that it was -- we thought it was an anomaly and we would get it back to normal sort of pattern. And I think we got that, and we'll keep -- we'll keep focusing on it. So it's still a young business. It's three years old in effect, we're very happy with where it is, but there's a lot to do.

Sanjay, it's great to see the Metallic growth engine kicking in and congrats on the strong quarter.

Thank you, Howard.

Thanks, Howard.

Your next question comes from the line of James Fish from Piper Sandler. Please go ahead.

Hey guys. Thanks for the questions. Maybe building off of the past couple here. I guess, how should we be thinking about net retention rate for Metallic this year and sustainably, like what are you guys internally kind of targeting for the next couple of years? Just trying to understand if some of this material boost in net retention rate is just catch up from like last quarter, for example, or sustainable. And two kind of the points you both have made here, what makes you confident that some of the Metallic strength here isn't due to substitution of your term business, especially if we're talking more mission-critical workloads moving on to Metallic?

Yes. Hey Jim, it's Gary. I'll start at all. I think the -- we're not guiding explicitly to this asset. I think if you see what's kind of at our level of majority of our SaaS business, meaning in that $130 million-ish of NRR. I think world-class NRR rates are somewhere between 120% to 130%. I think 130% is a little on the high-end on a sustainable piece that we delivered this quarter, especially as the base continues to grow every quarter. If we're somewhere in that range of 100 to 125, right, so bracketed somewhere between last quarter and this quarter on a consistent basis and working towards that, I think that's probably -- I think that's a good measure. We are seeing --

We have – less than 120 to 125.

Yes. Sorry, 120 to 125. Sorry, just to clarify that Jim. And then from more of the hybrid cloud mission-critical workloads, we are start seeing some very good growth on that -- on the SaaS business. Now, that growth right now is incremental. It's not enough to be truly cannibalizing the term-based software licenses from an actual deal perspective. Though customers are in the early innings of their cloud journey, right? So, they are taking the time, and that shows up in ASPs and the length of deals were in the early part of their cloud journey and cloud innings of migration. They're taking the time to make sure they measure their spending, and they're only committing to periods right to measure it with what they see in the near-term.

Got it. Helpful. And just remind me here. What really happened at the end of the quarter that essentially SaaS ARR accelerated, but we saw a deceleration secondly, in Metallic revenue that now revenue is actually outpacing ARR. Was it more of a back-end loaded quarter for Metallic? Should -- with it being about 77% ARR growth, should we be expecting stable Metallic revenue growth for fiscal Q3 essentially versus fiscal Q2?

No, I think stable. Any Metallic contracts that we signed in the second half of the quarter have very, very little revenue impact. So, linearity has less of an impact because you just don't get anything -- not much of anything, sorry, not much of anything, once you get past the first half of the quarter or linear to Metallic was relative to prior quarters. So, nothing unusual there.

Okay. Thanks guys.

Your next question comes from the line of Rudy Kessinger from D.A. Davidson. Please go ahead.

Hey thanks for taking my questions guys. It's great to see the dollar-based net retention rate rebound on Metallic. I guess the flip side of that is when I look at the growth in Metallic ARR from new customers, both on a dollar basis or as a percentage point of growth basis, it was down this quarter versus last quarter. I know your subscription customer adds continue to be about five quarter. But if you look at your new customers on Metallic, are you seeing customers start smaller just given the macro conditions and financial constraints that customers have, or what are you seeing from a new perspective on Metallic?

Hey Rudy, it's Gary. I'll hit that and good to hear from you. At the first half of the year, we're in a good shape Metallic on the new customer. I think probably somebody your math hit it on. We were probably a little stronger in Q1 on new customer. And then in Q2, existing customer was relatively a little stronger than new. But over the first half, that's kind of now evened out. And a business this young, it's hard to look at just one quarter as a long-term trend. We look back over two, three, four, five quarters to make sure that our trajectory on both our new existing or happening, and we're pleased with where that is. So, we're not reading into the one quarter. We still saw over 500 subscription new customers added during the quarter, and the vast majority of those are SaaS. So, we're still seeing it. Now, yes, the deal sizes and the ASPs are smaller. They're smaller, but we're okay with that because if I go back to the commentary I made on the net dollar retention and that focus on adoption, time to first backup recovery and then driving expansion and workload expansion, we're betting on the future and our ability to drive that expansion as well.

And -- and this is Sanjay, Rudy. The smaller ASPs is kind of part of the plan because we have a velocity business where we land smaller deals. We have marketplace business, which a smaller deal. We have MSPs that bring in smaller deals that we expand over time. So, it's a mix. We sell to the enterprise and we sell through MSPs. We said we've got the whole range.

Okay. Got it. That's fair. And then I hear you on the conversion, seeing fewer conversions, I guess, just if we look at your term license subscription business, if you strip out conversions, as we start to tweak our models for next fiscal year, I know we got a couple of quarters ago for this year. But ex-conversions, subscription license, a single-digit growth business going forward? Is that a low double-digit growth business going forward? What should we be expecting there just over the near to immediate term?

Yes. So we're not giving obviously the longer-term guidance. But even if I talk a little bit about what we saw in Q2, what we saw in Q2, you can kind of interpolate that our term license offer grew double-digits, right? So within subscription, our term software license grew double-digits, and that's with are conversion down substantially year-over-year. If you look at the guidance that I gave for fiscal Q3, the quarter that we're currently in, it's a very similar trend, where we're guiding to roughly double-digit within there will be double-digit term software growth year-over-year with same situation, conversions down year-over-year. So we're driving that growth and we're doing that regardless of the conversions. The conversions are a little variable in there, which is fine. I think they'll stabilize over time. We're just kind of giving scenarios based on currently what we see and where we see customers kind of in that journey.

There's definitely -- there's definitely customers are in that hybrid cloud journey, where they've got to make some tough calls, rearchitect, rebuild, shift, migrate, mission-critical workloads, not just independently but stacks into the cloud. And that's hard. And as -- and part of what we're going to talk about next week is how we're going to help customers do that. So when you look at the complexity of that, it's – you have to look at it and say, if I was the customer, how would I think about it? I'd say, okay, I got to get to the other side before I make a shift on something. So if you see -- if you look at the term, when you look at the license model or you look at going from software to SaaS, these are important decisions in the journey with the hybrid cloud. After that security and cyber risk, so there's a lot of factors, and we are very well positioned to – to help customers through that, and we are, which is why we see the momentum in our security capabilities and customers using that, adding up 500 new customers on the software, subscription and SaaS platform. So I wouldn't read into it too much, I would say it's -- they're in the crosshairs of sort of getting from one side to the other in critical mass, and that's what you're kind of seeing there

That's helpful. Thanks for taking my questions and congrats on the good SaaS figures in the quarter.

Thank you

Thanks, Rudy.

[Operator Instructions] Your next question comes from the line of Eric Martinuzzi from Lake Street Capital Markets. Please go ahead.

Yes. The perpetual license for the year, I think in past quarters, you've talked about expectation for $40 million to $50 million for fiscal 2024. Given you're at about $27 million here at the midpoint, are you still thinking in that $40 million to $50 million range?

Yes. Eric, it's Gary. That's correct. The trend we've seen in the first half of the fiscal year, I think our trend for the second half will be at -- will be at similar. We'll be at similar paces, maybe slightly less as the motion is fully now dedicated to drive the term subscription and SaaS business, we still have some vertical that are out there that still buy perpetual, but those verticals become limited every single day. So the range of 40% to 50% is still there.

Okay. But given the $27 million in the front half that would mean 23% would be the metric you would expect?

Yes, it would be the high end of the range. Yes, we'll be the high end of the range. Yes.

All right. And then it looked like outperformance international, international revenue, I think, was up 12% in the quarter. Just curious to know if you expect that -- is that just kind of a revert to the mean, or are we expecting that to outperform for the remainder of the year?

Yes. Eric, I'll take that. It's Gary again. So, very pleased with both of our regions. Our Americas business in total was up about 4%, and our international business was up, as you said, 12%. So both businesses returning to growth, which is that acceleration of total revenue growth of about 7% year-over-year, which we're pleased with. Our EMEA business is driving some growth. We're now seeing some really good acceleration on as well the subscription adoption. The Americas was more mature first and now the international business is driving with some of that really strong subscription adoption. The deal sizes in international are a little bit smaller relative to the Americas. So some of the lumpiness you can get on the Americas on the mega deals and some of the term -- the term length topics we've talked about is less prevalent international. So we're able to drive the really strong velocity business in the international markets.

Got it. Thanks for taking my questions.

Thanks, Eric.

Your next question comes from the line of Jason Ader from William Blair. Please go ahead.

Yeah. Thank you. Good morning, everyone. Just wanted to ask you first on the outlook for customer support revenue. As more of that mix comes from term do you expect the year-over-year decline to start to subside? You're down 9% in customer more in fiscal 2023 this year is going to be something I guess, slightly lower than that. But do you expect as we move forward into 2025 and 2026, so we should see that continue to -- the declines continue to subside.

Yeah. Jason, it's Gary. I'll take this question as well. So you've already started to see that even if you look at fiscal Q2 actual, it's one of the smallest declines we've had in quite some time. And the key driver to that is now a higher percentage of that customer support revenue is being driven by term. This year, we're on a pace where we'll get that amount of customer support related to term software license is probably to be somewhere 45%-ish to 50% roughly. And as we enter into next fiscal year, it should be the crossover year -- crossover year, meaning that as next fiscal year, the majority of customer support revenue will be derived from the term-related software contracts. That natural motion will then start to flat line the impact. And then what that does, it will start to alleviate some of the headwinds that had on the total revenue growth. A big piece of our total revenue growth becomes the impact of the customer support. And as we get into next fiscal year and the fiscal year after that, that will start to moderate. And you would expect the impact year-over-year or the decline to be significantly less than we've seen in prior years, including this year.

Got you. So the only, let's call it, the only sort of more significant headwind will be perpetual license line. Do you have any -- like you talked about 40% to 50% sort of towards the high end of that range this year in perpetual license revenue? As we move forward into '25 and '26 with pinning you down on specific guidance, do you think that will sort of continue to trail off sort of modestly, or do you think it will actually be more of a sharp falloff?

Modest. I think it will be modest. There will be similar to the impacts on total revenue as the customer supports us. If we end up somewhere, say, this year at the high end of that $40 million to $50 million, call roughly $50 million. Then as we get into next year, we're likely to be in that range, but probably more towards the lower end of that range. So you're talking variability is not significant on a revenue number that's obviously over $800 million.

Got you. Got you. Okay. Great. And then, Sanjay, I've got one for you, just on the SMB and mid-market dynamics, less about competition, but it's more about how SMB and mid-market customers are actually purchasing and procuring backup software and backup services. Can you just talk through, how you guys have -- let's call it, adapted your strategy because, it does seem like more of that market is shifting towards as a service offerings.

Sure. So for that particular segment, we've -- I think we mentioned in a couple of calls prior to this, Jason, that we've invested in a velocity motion, which loosely translates to ISRs plus a channel motion that allows us to go up the velocity of the smaller customers. That's number one. In addition, we've also been working with a growing MSP community and many customers, as you mentioned, like to work through that. The third is marketplaces as the hyperscalers sort of promote their marketplaces, we see customers being able to sort of tap into that motion and available software or SaaS right through that. So those are just some examples of how we're enabling -- our technology can be more accessible to our customers in the way they like to purchase.

And one quick follow-up and I'll see the floor. But on the metallic business, Sanjay, can you give us a sense of how much of that business is coming from sort of SMB mid-market customers versus enterprise?

I think it's -- if the trend has been fairly consistent, the enterprise side of our business is about one-third enterprise, roughly one-third mid-market, and one-third SMB. It's not by design necessarily. It seems to be following that. And I'm actually quite pleased with it because it derisks our business but also gives us a chance to grow in the areas that we haven't historically like the SMB and the lower mid-market.

Great. Thank you.

Our next question comes from the line of Tom Blakeley from KeyBanc Capital Markets. Please go ahead.

Hey guys, thanks for taking my question. Just a couple, Sanjay, if you could go back to that hybrid cloud journey answer you gave a prior call questioner. Is that company-specific, or could you talk to just the greater view in the industry in terms of things being complex and it seems to be a bit of a pause, hybrid cloud spend has received a bit of an uptick in the last few quarters, if not longer, as there's been a deceleration in public cloud spend in general. I just wanted to, kind of, maybe if you could clarify that or give any color it would be very helpful. And then just secondly, for -- on the NRR for Metallic, the split-up between capacity growth and new services, if you could? And if security, maybe it's a premature question, but is security impacting that NRR, that would be helpful. Thank you.

Okay. Let me process those. So the hybrid cloud journey, my thinking there is the fall. The customers -- think about it a little bit, first of all, as a trailing indicator. So it's about utilization. It's about workloads that use the commitment that customers have made in the hybrid cloud or the public cloud services. And what we're doing is helping customers through those difficult journeys because as the easy workloads move to the cloud, it gets harder and harder to move entire stack of mission-critical capabilities and run them entirely on public cloud services or hybrid cloud capabilities. And that's what I was referring to and we're helping customers, whether it be through moving that data, whether it's their infrastructure, whether it's their data security, whether it's applying intelligence incentive data management across that stack data into light. Tere's a lot of things that move into the hybrid cloud open up. And we're across a lot of those use cases and a lot of those outcomes. So that's where I was going. And it's not so much a -- whether it's increasing or decreasing in spend from a public cloud capability, it's really the utilization and making sure that customers are getting the value that they anticipated from that journey to the cloud. I was a CIO. It's moving mission-critical workloads, into a cloud or any other platform is -- it requires a lot of -- it is complex and requires a lot of thoughtful list and the right choices. And that's what we're trying to help our customers with. So that's my -- I want to pause there. Did I cover your question?

Yeah. Yeah. Just maybe a follow-up there, before we get to the NRR, does that imply from a trailing indicator perspective that there might be some pent-up demand for Commvault in that regard?

As the short answers, I would hope so. Because as customers move to the -- and a lot of what we're going to talk about next week, Tom, is about where we see the customer journey? Where we see them sort of having to make tough decisions? Where -- what are the hard problems there helping them with -- on data? Do they have to make choices between software and SaaS? The security models using AI. These are recovery capabilities when -- in the life of cyber resilience. These are all important decisions that have to be made as the journey to the cloud becomes more-and-more pervasive for our customers. And we're trying to be one to two steps ahead of them in anticipating that. So I would hope so.

And then just on the $130 million is a strong number. Just any type of commentary on the mix of capacity growth and new services there and possibly if securities impacting that would be helpful. Thanks.

Sure. Hey Tom, Tom its Gary, I'll take that one. Relative to the 130% of net dollar retention, as you think about the drivers of what drove that from an up-sell versus cross-sell, about two-thirds of that comes from up-sell. Meaning, up-sell more of a similar capacity or licenses or seats and about third or roughly there comes from cross-sell, which benefits of the cross-sell motion, whether it be dynamics, whether it be our security offering, the hybrid cloud for VMs or databases, they're all contributing factors. Absolutely, security is part of that. But we're seeing a little bit more on the up-sell and about third of that expansion on the nor driven from cross-sell.

Thanks Gary. Thanks guys.

We have no further questions at this time. I will now turn the call over to Michael Melnyk for closing remarks.

Thank you for joining the call today. If you have any follow-up questions, feel free to reach out to me. Also just a reminder, if you haven't yet registered, the live event will be November 8, in New York City and then, the replay for shift will be on November 9, visit commvault.com to register. Thanks for joining. Appreciate it.

This concludes today's conference call. Thank you for your participation. And you may now disconnect.