Commvault Systems, Inc. Q1 FY2026 earnings call

Good morning start to fiscal year. Total ARR, subscription ARR, total revenue, subscription revenue growth. SaaS ARR up 63% to $307M, over 8,000 SaaS customers. Best land and expand quarter ever with wins like Honeywell, Equifax, etc. Strong partner ecosystem with alliances like Deloitte, CrowdStrike, HPE, Kyndryl. Named leader in Gartner Magic Quadrant, won awards. Announced acquisition of Satori Cyber for data and AI security, expected to close this quarter. Healthy growth across geographies, industries, customer segments. Q1 gross margins 82.4%, operating expenses $173M, non-GAAP EBIT $58M, 47% Rule of 40.

Total ARR grew 24% to $996 million. Subscription ARR grew 33% to $844 million. Total revenue grew 26% to $282 million. Subscription revenue increased 46% to $182 million. SaaS ARR soared 63% to $307 million. Subscription ARR constitutes 85% of total ARR. Revenue from term software transactions exceeding $100,000 increased by 39%. Q1 SaaS net dollar retention of 125%. Number of SaaS customers utilizing 2 or more products increased by 45%. 70% increase in customers generating over $100,000 in SaaS ARR during Q1, with these larger customers now constituting more than 30% of SaaS customer base.

Fiscal Q2 '26 subscription revenue expected $174M - $176M, total revenue $272M - $274M, gross margins 81% - 82%, non-GAAP EBIT margins ~20%. Raising fiscal year 2026 guidance: constant currency total ARR growth 18%, subscription ARR growth 24%, subscription revenue $753M - $757M, total revenue $1.161B - $1.165B. Gross margins 81% - 82%, non-GAAP EBIT margins ~20.5%, free cash flow $210M - $215M.

Q: On the results, continued solid execution. I guess 2 quick questions for me. I know, Jen, you had mentioned the operating margin in both this quarter as well as through the full fiscal year does reflect the dilution impact of Satori. I'm curious, from a revenue perspective, are you factoring in any kind of contributions from that acquisition? And then as a second question, a lot of commentary around the cross-sell, upsell opportunity. I think last quarter, you talked about roughly 30% of your SaaS customers purchasing more than one solution. I'm just curious, I know you mentioned 45% growth. But how do we think about that as we move forward? How successful have you been? And where do you think that can ultimately get to?

A: Yes. thanks so much for the question, Aaron. I'll start with the first one around Satori. So we're incredibly excited about the Satori acquisition. It absolutely adds technology and talent as we think about expanding our -- the breadth and depth of our platform. From an overall top line perspective, it is immaterial and not really -- does not factor into any sort of uplift in revenue guidance. As it relates to the cross-sell, we have made really good progress. It's early innings. You heard me say last quarter, this is the first quarter we're actually really focused on it as a company. You heard me say in my prepared remarks that we saw an increase of 45% from a customer perspective using 2 or more. The other things I would add to you is the fact that you heard in my script that we're seeing numerous customers purchase 5 or 6 offerings, right? So there's great progress there. Another stat I'll share with you is within the SaaS net dollar retention rate. Historically, and I've shared with you that, that mix has been 1/3 cross-sell. This past quarter, it was 40%. And so ultimately, I think we're seeing really good traction. And then in addition to that, our security SKUs grew double digits quarter-over-quarter, contributing into that cross-sell and made up 20% of our net new ARR.

Q: Can you guys talk about the bundling strategy that you have right now? You have a lot of different products, obviously, seeing good success with cross-sell. What is the sort of kind of high-level bundling strategy? Is it still a work in progress? Or are you feeling good about where you sit with bundles today?

A: Jason, Sanjay. Good to hear from you. So there are some logical bundles that we offer customers today that just make sense together like Cleanroom and Active Directory or Office 365 and Active Directory. So we have those sort of packages that customers tend to avail of naturally because they work better together. As our cyber resilience platform continues to evolve, you'll see more of these logical capabilities coming together with the value proposition. And in November, as I said in my prepared comments, we have Shift, and you'll hear a lot more about how we're looking at our platform there. So hold that question for a little longer, and you'll see a lot more there.

Q: Great. Excellent quarter, guys. I have one for Sanjay and then one for Jen. For Sanjay, when you think about supplementing future growth through M&A, what are some of the key categories by which your team evaluates opportunities? And then on the Satori acquisition, are you seeing strong evidence that customers want to procure governance and policy enforcement for AI training from their data protection vendor as opposed to other infrastructure software providers?

A: Howard, so how -- if you look -- it's going to be hard for me to tell you what I'm going after, but I'll tell you what我've gone after. So if you look at the sort of history of acquisitions we've made, they've been really -- if you look at TrapX and what TrapX brought to us, if you look at Appranix, these were core security and cloud-native capabilities as the platform evolves. So as customers started moving more complicated workloads, building cloud-native workloads in the cloud, in a multi-cloud environment, we wanted to make sure that the way we protected those and gave resilience, one size doesn't fit all. So they flesh out our ability, for example, to be -- to keep customers more secure at the front and then, in turn, protect them in the cloud-native way. Now when we took on Clumio, Clumio gave us very good large AI data protection capabilities. Now with Satori, you're seeing that we're bringing those 2 things together. You've got the whole visibility, observability and policy enforcement across semi-structured and structured data that tacks on very well to the unstructured data pieces that our platform has. And also, as customers start training models, and using AI internally, policy enforcement and observability on LLMs and other things and the data that trains those models naturally fits that. So it's not -- I'll answer both your questions together. So it's not about separate policy enforcement on a separate tool set for just AI, and they will be placed for that. But this is really as the models get trained internally and your employees are using the technology, it gets -- you have the same level of visibility as to what's being fed, what's being used, what's being queried. So you get to enforce policy that way. And it will all be natural. It will all be part of the platform. So it will be -- we're going to integrate it very aggressively so that it's just a natural way to work with the platform, what we do already. We give你policies already. This is an enhancement. That's how I think about it.

Q: Got it. That makes a lot of sense, Sanjay. And for Jen, when we look at the full year revenue guidance being raised by more than the Q1 upside, how much do the quality and the size of your renewal base this year versus last year play a factor, including, I guess, potential for seat expansion and security cross-sell?

A: Yes. Thanks for the question, Howard. Actually, as we think about the overall revenue guidance, the overall renewal base has been already considered. And ultimately, what you're seeing in the guide is the strength of the business, both on the software and the SaaS side of things.

Q: Very strong results all around. I want to dig into maybe just the net new ARR in Q1. It does look like it's skewed much more towards term license relative to SaaS just versus the trend over last year, very strong term license net new ARR. Anything to call out there in terms of how deal dynamics shaped up? Or any color on maybe what was a bit weaker of a SaaS net new ARR quarter?

A: Yes. So first of all, I would say our SaaS business performed as expected and in line, and we're very pleased with that. the delta did come from overperformance in the software side of things. At the very, very end of the quarter, we did benefit from higher close rates on a few software deals. As it relates to as we think about the SaaS business overall and overall net new ARR on a quarterly basis, we believe going forward that you can see north of $20 million in the SaaS net new ARR. And then on the go forward, around $40 million total net new ARR quarter-over-quarter for the remaining of the year.

Q: Okay. I was going to ask about kind of the sequencing of net new ARR for the quarter, that kind of answers that. I guess maybe a follow-up on that comment you just made about some higher close rates towards the very end of the quarter. Could you just talk about the linearity of the quarter at large and how things trended month-to-month?

A: Yes. I think, first of all, when we started the quarter, we always expected that we'd be between $30 million and $35 million of net new ARR. And at the very, very end, close rates kind of improved, quite honestly, in like the last week or so of the quarter on a few large deals, and that's really what you saw from a linearity perspective.

Q: Congrats Sanjay and Jen as well. I'll ask maybe on Fed, if I could, Sanjay, just maybe some of the assumptions you're embedding in the guide, both for Sanjay and Jen and feedback你're hearing because I know it is a big quarter for you guys in Fed for 2Q.

A: Yes, I'll start. And then, of course, Sanjay, feel free to chime in. From a federal perspective, we feel incredibly good about our Fed business. It performed in line with our expectations in Q1. And overall, we expect to see similar seasonality for the first half of the year because we do know that overall, the Fed is stronger in the first half of the year. And ultimately, I think what we're seeing is that our FedRAMP High certification continues to be a competitive advantage for us.

Q: You summed it up.

Q: Sanjay, conversation we always have is just shots on goal. I guess, how are you feeling about what you're getting for shots on goal? I know there's been a lot more marketing programs going on and Jen related to that. We're about 85% subscription now. So is there a way to think about how much is left for migrations within the base?

A: Do you want to go, Jen?

A: Sure. So我would -- first of all, I'll start by saying we're really pleased with the overall performance of 85% of the business being on the recurring base of subscription. As we think about migrations, right, and overall, like our perpetual business continues to be a small amount of the overall revenue. We saw that come down this quarter. We're focusing the business on subscription, right? But ultimately, what we're seeing is more and more of our ARR is coming from our land business, right? And so ultimately, the growth is not really coming from the conversions. It's much more about land, in particular, on the SaaS side.

Q: Sanjay, from a conversion point of view, we've always held the line that we don't want to do anything unnatural. Customers have choices. and we give them the choice. We lean in towards a subscription platform, be it SaaS or term license. But if for whatever reason, customers wish to go perpetual, they have that choice right now.

A: And from a conversion point of view, we've always held the line that we don't want to do anything unnatural. Customers have choices. and we give them the choice. We lean in towards a subscription platform, be it SaaS or term license. But if for whatever reason, customers wish to go perpetual, they have that choice right now.

Q: You summed it up.

Q: Congratulations on a stellar fiscal 1Q here. Maybe for starters, 2 questions. Sanjay, could you just maybe give us an update on the potential competitive displacements and maybe consolidating workloads on Commvault, this growth is pretty dynamic, and we've been talking about that for a while. I'd love to get a kind of update there in terms of the sustainability of this dynamic growth. And then, Jen, thank you for that color on the north of $20 million net new ARR from SaaS. Can you just maybe talk about any maybe changes there in terms of competition or maybe pricing of whatnot? We talked about bundling, I think, in a prior question. Or is it just kind of net new conservatism because that doesn't imply a lot of growth on a year-on-year basis from net new ARR that occurred in the last kind of 4 or 5 quarters. That would be helpful.

A: Yes. So Tom, from a displacement point of view, if you look at just the software on-premise set of capability, that's a market that's growing low single digits. So we're growing in a healthy pattern, which means we are taking share. We're taking share because of a few things. One, our technology continues to lead. I mean if you look at all the new Gartner reports, our technology continues to lead in every way. Our delivery model with the partner ecosystem has evolved and continues to evolve every quarter. In my prepared comments, I shared the new partnerships and the impact they're going to have. The third piece is that the problem we solve, the hard problem we solve for customers goes beyond data protection. We're now looking at entire environments on cloud native. We're looking at true multi-cloud. We're looking at SaaS environments. And so when你take those factors and the customers have -- customers are definitely consolidating. More in this case, is not better. Having more vendors, more policies, more feet on the street to make things work is actually harder. And so there is a definite direction of consolidation to our advantage because our platform uniquely provides that capability at scale and does it in a hybrid environment.

Q: And Tom, regarding your overall SaaS, ultimately, what you're seeing is just strength in our overall organic business. Yes, Sanjay just said on the competition element, we're not really seeing too many changes there. Ultimately, customers want our full platform and our SaaS platform absolutely meets the moment. So ultimately, it's just growth in the organic business.

Q: Again, congrats on a great quarter. I had, I guess, a couple for me. First of all, Jen, there's some of the things we hear from the channel that there are customers who are pulling forward calendar '26 budget plans into actually into '25. So I'm kind of wondering, as you look at your strong performance, clearly, the market is doing very well. But is there a way for you to tell if there's a pull forward activity within your customers right here right now?

A: Yes. Thanks for the question. We spent a lot of time with our go-to-market team here, and we're not seeing any pull forward. It's just strength in the overall市场 and our products meeting the needs of customers and our team executing incredibly well.

Q: Excellent. Then maybe as a follow-up, you started the new year. Can you talk about the comp plans? How have they changed, if anything? What are you incentivizing more or less of this year?

A: Sure. So we don't talk -- we don't give a lot of details around the comp plans. But what I can tell you is our team is incentivized to absolutely go after overall recurring revenue, and we are balancing the need between what -- meeting the needs of what customers want. Ultimately, it's all aligned.

Q: Sanjay, Pay-for-performance.

A: Pay-for-performance