Thank you for standing by. I would like to welcome everyone to the Commvault Q2 FY 2025 Earnings Conference Call. I would now like to turn the call over to Mike Melnyk, Head of Investor Relations. Please go ahead, sir.

Good morning and welcome to our earnings conference call. Before we begin, I'd like to remind you that statements made on today's call will include forward-looking statements about Commvault's 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 the non-GAAP and GAAP measures can be found on our website. Thank you again for joining us. Now I'll turn it over to our CEO Sanjay Mirchandani for his opening remarks. Sanjay.

Thanks, Mike. Good morning, and thank you for joining today's call. Q2 was an exceptional quarter with momentum once again accelerating across all our primary KPIs. During the quarter, total revenue increased 16% to $233 million, our fourth consecutive quarter of double-digit revenue growth. Total ARR accelerated 20% to $853 million, Subscription ARR rose 30% to $687 million. SaaS ARR jumped 64% to $215 million and now represents 25% of our total ARR. And free cash flow grew 34% to $54 million, with 97% of that free cash flow returned through share repurchases. It has never been clearer that what we do matters. In an age of nonstop threats and cyber-attacks, organizations need to be ready. And once that moment comes, they need to be able to quickly recover without missing a heartbeat. This is even more important in the cloud-first world that we live in today. Let me say more on that. IDC reported that 73% of all new data that will be stored in the Cloud and that spending on public Cloud services is expected to double in the next four years. However, traditional static approaches to business continuity and outdated point solutions are grossly inadequate for today's dynamic digital cloud-first enterprises. This is why we've been innovating and re-envisioning a world we call continuous business, where resilience and security are implicit. It is built on three fundamental principles. First, to be truly resilient organizations must own their cloud-first environment and be able to scale it, shrink it, manage it and secure it any way they want. After all, if their businesses is in the cloud, then keeping their cloud resilient is their business. Next, multi-cloud is not universal. So, customers need agility, diversity and portability across clouds to reduce lock-in, improve the redundancy and embrace scalability to…

Thank you, Sanjay. It's great to be here, and thanks to the entire Commvault team for the warm welcome. I knew I was joining a great company. But in a few short months, I have been here, it is clear that the team has created something extraordinary. I'm excited to be a part of this. It's also been the great to partner closely with Gary during the transition as well as the rest of the leadership team. As Sanjay shared, Q2 was a record quarter across all parts of our business. Our Commvault Cloud platform is resonating as for enterprises now more than ever need to be resilient. This results ahead of the high end of our guidance across all key metrics and give us confidence in our ability to seize the opportunities ahead. Today, I will share our Q2 results and operating metrics and then provide our guidance on Q3 and FY '25. As a reminder, all growth rates are on a year-over-year basis unless otherwise noted. Our differentiated Commvault Cloud platform continues to gain momentum, especially with the cyber challenges enterprises are facing today. In Q2, we continued to see an acceleration in the monetization of our cyber resiliency offerings. That, combined with field execution resulted in total revenue growth of 16% to $233 million. This was led by a 37% increase in Subscription revenue. We are proud to deliver our fourth consecutive quarter of double-digit total revenue growth. Growth in Subscription revenue came from both increased contributions from our SaaS portfolio and continued double-digit growth in term software licenses, well ahead of the market growth rate. The contribution from our term software transactions exceeding $100,000 increased by 23% and benefited from a 12% increase in the average deal size. This expansion reflects a healthy sales mix of…

Thank you. [Operator Instructions] Thank you; we will begin the question-and-answer session. Your first question comes from the line of Aaron Rakers from Wells Fargo. Your line is open.

Yes, yes, thank you very much. Thanks for taking the questions. I have a couple here real quick. And first of all, congrats on the continued very strong results, very impressive. I guess my first question is, when we look at the Subscription business and in particularly the SaaS business, I'm curious if you could unpack a little bit the up-sell and maybe cross-sell motion that the company has been seeing. Any changes in this last quarter? I think a couple of quarters ago or so, you've given some metrics around that ability to have the SaaS business and cross-sell into the core storage management platform. So, any kind of updated metrics around that would be great.

Hey Aaron, it's Sanjay. Thanks. I'm going to hand this over to Jen, our new CFO. I just wanted to welcome her on the call, and I'm going to hand it over to her to answer the question.

Thanks, Aaron, for the question. And thank you, Sanjay. So, our -- we're really excited about the momentum we're seeing in our SaaS business, over $250 million in SaaS ARR this quarter is a record for us, and we're excited about that. The momentum that we're seeing in our SaaS ARR really comes down to the continued execution from the sales team as well as the fact that our staff NRR was 127%, right? And that's driven through a combination of upsell and cross-sell, that would be breaking down by one third cross-sell and two third upsell. And we are continuing to see traction in our Cyber Resilience products, and we’re excited about the new products we’re launching. I would say, overall, our emerging workloads are really pretty picking up momentum and we’re excited what we’re seeing.

Yes. Workloads like ThreatWise, workloads like Active Directory, Cleanroom, these are all -- these have all been launched in the past, I don't know, let's say, six to 12 months and are really seeing into proof of concept and being deployed. So, those are kind of emerging workloads.

Yes. And then a quick follow-up question. You mentioned, obviously, the relationships with AWS and Google on the call. But one other relationship I’m curious about is how are we thinking about the alignment with Dell. And I think in particular, with maybe the data domain platform, any update on how that relationship's evolved and whether or not we should think about that as being a incremental contributor to growth as we look out over the next couple of quarters. Thank you.

Sure, sure. So, just on the AWS and Google, it's building on what we've already got. And with AWS, it's bringing some of our core platform capabilities and to -- based on customer demand in true multi-cloud environments. The Clumio acquisition also underscores our commitment to making sure that we've got the best-of-breed capabilities on all major clouds. With Google, it was support for Google Workspace. We've been on this for a while, building this out to bring the capabilities we have on the Microsoft 365 at that level. So, now we've got both major suites completely covered. Again, these are all incrementally growing our existing partnerships. The bit around the Dell data domain and our partnership, if you would, is work in progress. When we announced it, Aaron, I was very clear that this is not a short-term thing. Taking out entrenched sort of incumbents needs an overall strategy, need Cyber Resilience end-to-end, and that's exactly the kind of wins we're having. This is work in progress. We're working together. It's moving along well. We've got lots of lots of good stuff happening, but I'm not putting out a number in any way around that specifically.

Yep, fair enough. Thank you, guys.

Thank you. Our next question comes from the line of Rudy Kessinger from D.A. Davidson. The line's open.

Hey guys, thanks for taking my questions and I'll add my congrats to another very strong quarter. The SaaS ARR is obviously highly impressive. I think equally as impressive or certainly interesting is the growth on your term license ARR has accelerated the past couple of quarters. Some of your competitors are pretty much ignoring the on-premise segment of the market at this point. Could you just talk about the competitive landscape there in the on-premise segment of the market and just the opportunity there and what you're seeing from a legacy displacement standpoint?

Absolutely. Rudy, Sanjay. First and foremost, we've said this -- I've said it as long as I've been here, it's a hybrid world. And in the cloud side, on the cloud side, it's truly multi-cloud now, and we're pivoting to saying cloud first. In other words, it doesn't matter if the workload in some ways runs in the cloud or as a SaaS workload, your data has a high propensity to land in the cloud. So, having first-class capabilities on any cloud being truly multi-cloud matters. That does not preclude the fact that on-premise capabilities continue to grow. okay? And we are, I think, the broadest capability -- set of capabilities, and we have a platform advantage on-premise. Now from the days of Metallic, when we launched Metallic, I'll take you back a little bit, it wasn't so long ago, we talked about one platform, whether it's a SaaS workload, whether it's a cloud workload or an on-premise workload, you get one pane of glass because workloads should be able to move freely based on customer requirements. That strategy, if anything, has held us in good stead, and we are best-in-class because customers don't have to make unnatural choices between a workload living here or living there on one cloud or the other. With our platform, you get seamless portability across your workloads. And we're continuing to invest on our on-premise capabilities. We announced a bunch of features and capabilities on this at Shift a couple of weeks ago. And as you can tell, it's not at the cost of cloud.

Yes. Got it. That's helpful. Jen, if I look at the guide here, in the first half, your net new ARR growth was 93% year-over-year. It's implied at down mid-single digits in the second half, even lower than that organically if we assume some contribution from Clumio, was there any large pull forwards or early renewals that contributed in the first half? Or just how does the second half pipeline look relative to the first half? Just trying to pair what looks like a very, very conservative second half guide versus what you just put up in the first half.

Thanks for the question, Rudy. And I would just reiterate, we're really, really proud of the execution that we saw in the first half of the year. It really does a testament to not only what we're seeing from a product perspective, but overall execution to the sales team. As we think about the second half of the year, you may have seen in our press release that we had about 1% FX benefit from our -- in our Q2 revenue. On an ARR basis, that equates to a couple of points. And so, as I think about it as my first quarter as CFO, I would continue our responsible growth strategy and also the guidance philosophy that the management team have already put into place. And so, if you take a look back over the prior four quarters, for averaging about $29 million in ARR on an average, there's fluctuations to that number. And I think what you'll see is our second half of the year guidance is consistent with that.

That's helpful. Thank you and congrats again, Guys.

Thank you. Our next question comes from the line of James Fish from Piper Sandler. The line's open.

A couple of questions here. I know you don't break out with an international exactly between APAC and EMEA. But EMEA -- let's call it has been pretty decent. Obviously, U.S. was really strong this quarter based on your disclosures, our Americas was. Is there any way to understand what you guys are seeing at this point for pipeline related to Dora specifically in EMEA?

Hey there. It's Sanjay. So, with DORA, there's been a lot of work -- we've been doing a lot of work leading up to the regulation, which I think kicks in, in Jan. And we've been working on our own platform, building in building regulatory and compliance capabilities, but also partnering with others, whether it be systems integrators who are actually implementing the systems for customers have been implementing customers that will continue to or with partners like Pure, where between that platform and our we're bringing sort of engineered capabilities for DORA compliance out of the box. So, we think DORA has been contributing between Europe to our business and will continue to as customers roll out the full breadth of what's required.

Got it. And then, Jen, for you. Building off of Rudy's question a little bit here. Can you just unpack on the guide raise? How much of it is what you guys are seeing in terms of, call it, ELAs or consolidation platformization coming in this year versus I think people are missing that Appranix was helpful in fiscal Q1 as just a reminder, as we think about in fiscal '26, but how much is coming in for Appranix and Clumio on the ARR side this year?

Yes. Thanks for the question. Like I said before, we are really proud of the momentum we're seeing in our organic business. And the strength of that came through in the first half of the year. As we think about the second half of the year, we are excited about our -- the acquisitions we've done. Clumio, in particular, was very much an acquisition for us to broaden the technology and increase the talent here at Commvault and continue to accelerate our innovation and need for customers. As I look to the second half of the year from a guidance perspective, most of this is organic. We could share that Clumio was accretive, but it's not material. And so, as you think about the impact in the second half of the year, it's a few million dollars per quarter. But again, I would point you back to the strength of the business from an organic perspective.

And we're -- we're in the throes of literally, it's been a few weeks. So, we're in the throes of actually starting the integration process with the Clumio team, and we're very hopeful that this thing will get integrated quickly. And the customers will get consolidated and expand nicely. With the Appranix, we've had a few more months of a head start. And with Cloud Rewind, which we announced a couple of weeks ago, which is a rebadged rebuild version of Appranix. We've already got new customers, and we've got a very healthy deadline that's lining up. Again, this isn't a carryforward piece. This is all organic. I consider it organic as it's now part of family.

Yep, makes sense. Guys, thanks.

Thank you. Our next question comes from the line of Jason Ader from William Blair. The line is open.

Thanks. Good morning, guys. A couple of quick ones. On the revenue side, did you disclose the growth rate there? I don't know if that's something that you're doing every quarter. But if not, it would be great to get that.

We don't disclose that right now. We focus on the software or the overall software number, which the software number this quarter grew 37% -- on Subscription.

Okay. And then just as it thinking about operating margin outlook, I understand there's some -- the acquisitions that you've done. -- what we're talking about. You guys are about to hit $1 billion in revenue running at 20% -- 20% to 21% operating margin. How do you feel about that number? I mean, from kind of at-scale software companies, that seems low to me. What are your thoughts on kind of where that goes over time? And how do you get there?

Yes. Great question. Thank you. I would say if we do know, we are committed to responsible, profitable growth. In 2025, we have shared that we are investing to accelerate our growth and capture market share. All at the same time, we are working to ensure that we increase leverage within the business. You saw that this quarter in the past, and ultimately, we're committed to doing both of those things across, and we will continue to expand margins over time, while also accelerating the growth, and I would just point you back to the guidance that we shared today for the FY '25.

Okay. And then, Sanjay, if I could use one last one in for you. Something that we're hearing about more is consolidation of backup systems where customers have accumulated sort of multiple different products over the years from multiple different vendors. Can you just talk through what you're seeing on that front and how that's impacted your business?

Just I've been saying this for a while that there is a platform consolidation required in the industry. Just over the years, there have been too many big part programs. There have been too many best-of-breed "capabilities" that have been inserted into enterprises, which -- and I think I've said -- I said last quarter, I'd say again, in this case, more is not necessarily better. And so having an end-to-end capability that really allows you to see every single workload every application and every cloud and one pane of glass is the right approach. Now -- it's a journey. This is not easy. We've been in business for 20 years or 15 years or 10 years. You've got a little bit of everything and for customers to really make that call and do that migration needs time and decisions. And our platform is deeper suited. That is exactly how we win. No workload left behind. And now we've gone further to say no application and no cloud left behind. We're changing the dynamics because we were the data guys. We are the data guys. We would always say, we'll bring your data back and then the customer has to go bring the rest of it back. Now we're saying, it's a hard science problem even from that point on, and we want to be part of that. And we're helping -- so if you look at the Appranix capability. And if you look at some of the ambition we have around Clumio, that's exactly where we're going to go, we're going to go the entire distance and one platform allows customers to do any workload, any cloud, any application whether it starts on-premise, on the edge or in the cloud and wants to move between them. So, that's been our stated direction. And we are putting every ounce of engineering energy we've got into that.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Howard Ma from Guggenheim. The line's open.

Thanks. And I want to add my congratulations as well on the exceptionally strong results. I want to ask, I guess, for both Sanjay and for Jen, what is driving the strength in your on-premise Subscription business? And when we think about the upside in the quarter, the Q2 upside and the raised full year forecast, how much of that is renewal timing is because you have more 1-year deals now up for renewal? Or is it -- is it not that? Is it primarily due to workload expansions and new logos, and if it is new logos, where is the market share? Where are the gains coming from? Because I would think that with the acquisition of Veritas by Cohesity in your new partnership with Dell, there's -- I would think there's less to win going forward from the two biggest share builders?

It's the latter. It's Sanjay here. Good to hear from you. It's the latter. We're taking share. we're taking share because of the -- my earlier response because of the breadth of our platform because we democratize the fact that the workload could start anywhere and anywhere and live anywhere. And we protect it all the way. Now, the market, if you look at the traditional on-premise market and depending on who survey you look at, it's flat to low single digits of growth, mostly flat. So, if we're growing the way we're growing and have been for the past many quarters, we're taking share from incumbents and we're an enterprise player at heart. So, am I taking share from Veritas Cohesity? Absolutely. Am I taking share from some of the other incumbents? Absolutely. And we continue to do that because our platform breadth is second to none. That's how we win. Now subscription versus nonsubscription we lead with subscription. That's what the sales force leads with if it's an on-premise sale.

Got it. Thank you for the directness. I just have a quick follow-up. When we think about the contribution of Clumio and Appranix, which Jen just shared some details on, if we think about the seasonality for net-new ARR in the SaaS business, should that result in more acceleration this year in the back half than last year?

You want to repeat the question?

Yes. Can you repeat the question?

So, the question is should we expect more acceleration in a SaaS net new ARR in the back half of this year versus last year, considering that the increased contributions from Clumio and Appranix?

Yes. Great question. I think as it relates to the second half of the year guidance, right, the seasonality, the uptick is already implied in the guidance that we've given. And I would just go back to my second half answer around the fact that on average, over the last four quarters, we've seen about $29 million in net new ARR per quarter. And I think that's the right number for us for our model.

And what I would add is we see Appranix pipeline being built up because they've been in the family now for a few months and the product has been integrated into Commvault Cloud. We expect to see the same process go through with Clumio. And I think you'll see more of the impact in fiscal year '26.

Got it. Great. Thanks so much.

Seeing as there are no more questions in the queue, that does conclude our question-and-answer session. I will now turn the call back over to the Commvault team for closing remarks.

Thanks, everyone, for joining our call today. If you need any additional information, please review our investor presentation on the Investor Relations website. We look forward to speaking with you. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.