Good day, and thank you for standing by. Welcome to the Commvault Q1 Fiscal '22 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Melnyk, Director of Investor Relations. Please go ahead.

Good morning, and thanks for dialing in today for our call to discuss our first quarter fiscal year '22 earnings results. Before we begin, I'd like to remind everyone that the statements made during this call, including in the question-and-answer session at the end of the call, may include forward-looking statements, including statements regarding financial projections and future performance. All the statements that relate to our beliefs, plans, expectations, or intentions regarding the future are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on our current expectations. Actual results may differ materially due to risk and uncertainties, such as competitive factors, difficulties and delays inherent with development, manufacturing, marketing, and sale of software products and related services and general economic conditions. For a discussion of these and other risks and uncertainties affecting our business, please see the risk factors contained in our annual report on Form 10-K and our most recent quarterly report on Form 10-Q and in other SEC filings and in the cautionary statements contained in our press release and on our website. The company undertakes no responsibility to update the information in this conference call under any circumstance. In addition, the development and timing of any product release as well as features or functionality remain at our sole discretion. Our press release related to today's announcement was issued over the wire services earlier this morning and has been furnished to the SEC as an 8-K filing. The press release is also available on our Investor Relations website. On this conference call, we will refer to non-GAAP financial measures. A reconciliation between non-GAAP and GAAP measures can be found on our website. This conference call is being recorded, and a replay is available for the webcast. An archive of today's webcast will be available on our website following the call. With me on the call this morning are Sanjay Mirchandani, President and Chief Executive Officer of Commvault; and Brian Carolan, Chief Financial Officer of Commvault. Sanjay and Brian will each share opening remarks and commentary before we open the call for Q&A. Now I'll turn the call over to Sanjay.

Good morning, and thank you for joining us this morning. As the pandemic continues, I hope you're all remaining healthy and well. As you saw in our earnings release this morning, we are off to a solid start to the year with our Q1 results, and they are consistent with our near-term expectations. Software revenue grew 7% and total revenue grew 6% year-on-year. Our total ARR grew 13% year-on-year, driven by new subscription customers and the continued strength of our Metallic data protection as a service offering. We continued to make progress on our recurring revenue transition with 78% of Q1 total revenue being recurring. We saw further evidence that our intelligent data services platform and strategy are resonating with customers as both new product contributions and multiproduct adoption increased quarter-over-quarter. And we grew responsibly, achieving a non-GAAP EBIT margin of 22.4% and posting non-GAAP EPS of $0.62. This would not be possible without the dedication and hard work of our employees, so I would like to extend my sincere thanks to all our Vaulters around the world. Brian will delve into the financials in a few minutes. But first, let's discuss the market and our portfolio. The cloud-based market transformation we anticipated is in full swing, and it couldn't have happened at a better time as more companies return to the office, revisit the IT priorities they paused during the pandemic and grapple with a rise in ransomware attacks. As you know, the pandemic has changed business forever. At Commvault, even before COVID, we've always had a significant percentage of employees working remotely with talent and resources around the world. Yet, as more companies are taking advantage of people, systems, and data in multiple locations, they are turning to us to help them modernize their data environment, to address these new needs and more effectively manage their data costs. We do this by offering the broadest workload support across environments, applications, and clouds with industry-leading data management and protection, security, compliance and governance capabilities. And we provide the ultimate choice and flexibility by delivering our solutions as software, in appliance, in managed service or SaaS, all managed through a single pane of glass. This competitive differentiation is helping us expand with existing customers and land new customers globally. For example, Harel Group, one of Israel's largest insurance providers, uses our software to protect over 1.5 petabytes of data on-premise. In moving to Microsoft Azure, including Office 365, Harel needed to ensure that cloud data could be protected and recovered as easily and reliably as their on-premise data. Metallic's backup for Office 365 and Metallic Cloud Storage Service enable Harel to protect thousands of mailboxes, minimize infrastructure costs and reduce the risk of ransomware attacks. Speaking of ransomware, during the quarter, we also saw more demand for our data security services from existing customers to help them recover and minimize disruption from ransomware attacks. In fact, we have these conversations daily with our customers and prospects. In a recent IDC survey of over 400 Commvault customers, 60% of respondents said their decision to choose Commvault was triggered by a desire to reduce risks from ransomware and other threats. More importantly, nearly 85% of those surveyed said they felt more confident in their ability to recover from a ransomware attack after deploying Commvault software. For instance, among our Q1 wins was one of the nation's largest banks with over $150 billion in assets and thousands of branches and ATMs. This new customer chose Commvault over a legacy incumbent primarily because of our layered approach to ransomware recovery. Our offerings of Metallic Cloud Services, combined with HyperScale X, can address the needs of both new customers and existing customers looking for more protection. We're attracting more cloud-leaning new customers with Metallic, which provides an easy-to-adopt, highly secure backup environment with local immutable copies of HyperScale X and cloud copies in our air-gapped Metallic Cloud Storage Service. It's our ability to bring the power of HyperScale X alongside Metallic to provide capabilities no one else can match. The flexibility and breadth of capabilities across our entire intelligent data services platform is resonating with customers. Tower Research Capital not only chose Commvault to protect petabytes of data across Dell-EMC, Isilon, and NetApp, but we beat the competition based on our ability to lower total cost of ownership and operating costs, provide a standardized data management platform, and simplify their environment. This innovation continues to garner numerous industry accolades. GigaOM recently named Commvault as a leader and an outperformer in its GigaOM Radar for hybrid cloud data protection reports for both enterprise and SMB. We were a top-rated vendor in all key criteria and evaluation categories across both reports. And just last week, Commvault was also named the leader in Gartner's 2021 Magic Quadrant for Enterprise Backup and Recovery Software Solutions for the tenth straight time. Now I'd like to take a moment to discuss Metallic, a rising star in our intelligent data services portfolio. I'm excited to report that Metallic continues to show very strong momentum. We're seeing increased interest in managed services and SaaS as organizations with constrained resources are migrating more workloads to the cloud. In fact, most of the workloads we're managing through Metallic are net new workloads. We have demonstrated that our enterprise-grade data protection as a service platform can scale across customers of all segments, sizes, and types of data. In Q1, Metallic total customer growth continued to impress quarter-on-quarter with over 300 new customers. Over 50% of those customers are net new at Commvault, and more than half of our Metallic customers are using another Commvault solution. Another pattern we've seen over time is that one-quarter of them are choosing more than one Metallic offering. These are exciting trends that demonstrate our ability to land new customers and expand our footprint with existing customers. We're also seeing continued adoption among enterprise customers with greater than $100,000 in Metallic ARR. The number of these customers nearly doubled this past quarter. And Metallic continues to rapidly innovate. We released Metallic Government Cloud, becoming the only data protection as a service offering in the industry to currently achieve FedRAMP high-ready certification status. Given the heightened security needs of customers, this certification validates that Metallic meets the most stringent confidentiality, integrity, and availability standards recognized by the U.S. government. In Q1, we announced Metallic Backup for Microsoft Dynamics 365, completing protection for all three Microsoft clouds. We also delivered Azure Active Directory backup, a critical component for company security strategy. We saw immediate customer demand and wins for all of the new services and features. And just two weeks ago, we launched Metallic for MSPs to offer customers even more choice in delivery models for their intelligent data services with SoftwareONE as our design partner. We expect this new agreement will help scale the reach of Metallic around the globe. We're very encouraged by our momentum, and we're confident in our ability to continue winning share of the large and growing data protection as a service market. We believe that we are well-positioned to continue to deliver on our industry-leading innovation roadmap and drive our go-to-market initiatives to achieve our financial targets. Now I'll turn it over to Brian to discuss the financials.

Thanks, Sanjay, and good morning, everyone. Hopefully, you had a chance to review the results we released earlier this morning. Coming off our record fiscal '21 performance and into the first quarter of fiscal '22, we are off to a solid start. I will briefly recap the results. In fiscal Q1 '22, we reported total revenue of $183 million, an increase of 6% year-over-year. Software and products revenue increased 7% year-over-year to approximately $82 million. As a reminder, we've moved to a software-only model. In Q1, software-only growth without hardware would have been approximately 11% year-over-year. Revenue from software transactions over $100,000 increased 2% year-over-year and represented 69% of software revenue. The volume of these transactions increased 34% year-over-year, and the average deal size was approximately $305,000. Please note that in Q1 '21, we recorded the single largest subscription software deal in our company's history, which made for a challenging comparison this quarter. Our unbundled portfolio and usage-based pricing is resonating with small and medium enterprise customers, and we saw continued improvement in software deals under $100,000. Revenue from these transactions grew 23% year-over-year, led by the Americas and EMEA. Fiscal first-quarter services revenue increased approximately 5% year-over-year to $101 million. The growth in services revenue is being driven primarily by Metallic. We also saw improvement in professional services revenue as we delivered services attached to the strong software results in the second half of the prior fiscal year. Let me now discuss our transition to a recurring revenue-based model. First quarter subscription software revenue of approximately $50 million represented 60% of total software revenue. Our subscription ARR net dollar retention rate continues to exceed 110%. Total annual recurring revenue, or ARR, increased 13% year-over-year to approximately $533 million. The sequential increase was driven largely by new subscription customers and strong growth from Metallic. Total recurring revenue, which includes subscription software, maintenance support services, and SaaS, was $142 million, representing 78% of total revenue in the quarter. Now I'll discuss expenses and profitability. We reported fiscal first-quarter gross margins of approximately 87%, a 70 basis point improvement year-over-year. The increase was driven by the absence of pass-through hardware sales versus a year ago and the reduction of certain third-party royalties that were associated with our legacy hyperscale products. Total expenses, including both cost of sales and operating expenses, increased 1% year-over-year to $140 million. Our spending was lower than expected, mostly because of the timing of headcount investments. The timing of hiring of certain positions was impacted by COVID. We have already started catching up in Q2. Our solid revenue growth and lower-than-expected expenses resulted in non-GAAP EBIT of approximately $41 million or 26% growth year-over-year. Non-GAAP EBIT margin improved 360 basis points year-over-year to 22.4%. Now I'll discuss cash flows and the balance sheet. For the quarter, we generated approximately $36 million of free cash flow tied to our strong EBIT performance and the collection of receivables from Q4 '21. We ended the quarter with approximately $359 million in cash and continue to have no debt on the balance sheet. We expect a seasonal sequential decline in Q2 operating cash flow as a result of lower concentration of perpetual maintenance renewals in the first half of the fiscal year. During the quarter, we repurchased approximately 1.2 million shares for $90 million. As we outlined during our investor event in January, through FY '22, we are committed to spend $200 million plus 75% of fiscal '22 free cash flow on share repurchases. Since the investor event and through June 30, we have repurchased approximately $152 million worth of our common stock at an average share price of approximately $69.50. Now I'll discuss our financial outlook for Q2 FY '22. We believe current street consensus of approximately $83 million of software revenue for Q2 is reasonable. This would imply year-over-year software growth of 14%. Please note that the prior year second quarter included approximately $3 million of pass-through hardware, which we don't expect to have this quarter. On a software-only basis, $83 million of revenue would be approximately 20% year-over-year growth. We also believe that the current street consensus for total revenue of approximately $184.5 million is reasonable. Similar to last fiscal year, we expect the Q2 '22 software subscription renewal opportunity to be several million dollars less than Q1. For the full fiscal year, we estimate a renewal opportunity of $80 million, with about 60% of this being in the second half of the year. Looking further out, we expect subscription renewals will continue to be a revenue tailwind for the next several years. As a reminder, Q2 is also typically a challenging quarter from a seasonality perspective. And as organizations return to the office, we could see some shift in IT priorities given the additional strain on customers' already limited resources. This could impact the timing of large deal closures. Now let's shift to expenses. We expect Q2 gross margins to be approximately 86% to 87% and total expenses, including both cost of sales and operating expenses, to be up approximately 4% year-over-year. This should result in EBIT margins approaching 20%. We plan to add resources to strategic areas like Metallic, our center of excellence in India, and go-to-market. These investments are incorporated in our near-term expectations. In addition, we expect some of the temporary COVID-related savings to continue to normalize. Our projected share count for Q2 is approximately 48 million shares. With that, I will now turn the call back over to Sanjay for some closing remarks.

Thanks, Brian. We made tremendous progress and believe we have the industry's most comprehensive platform to help organizations protect mission-critical workloads as they move further into the cloud and rapidly embrace SaaS solutions. We believe we are well positioned to meet our performance goals for both the short and long term. While we have more to do, we're optimistic that, with our growing intelligent data services portfolio and focus on execution, we will be able to help our customers continue to do amazing things with their data. With that, let's open it up for questions.

Your first question comes from Aaron Rakers of Wells Fargo.

Congratulations on the quarter. A couple of questions if I can. I guess, the first question is you talked towards the end of your comments around the outlook around the possibility of any kind of deal, large deal kind of pause as enterprises come back into the office. How would you characterize your pipeline, your deal activity and kind of closure rates here as we start to think about that? Has there been any changes in the June quarter? Or what are your assumptions into the September quarter right now?

Aaron, it's Brian here. Good to hear from you. So I think we're seeing consistency. We're encouraged by what we're seeing, especially on a year-over-year growth basis. The guidance that we're issuing is 14% year-over-year growth. If you strip out the hardware, that's 20%. So that's a healthy year-over-year increase from our perspective. We're just calling it out that the pandemic is very much here. People are going to be coming back to the office; it's summertime; it's seasonality. We're just calling that out. It's not anything specific we're seeing, but there's always that possibility.

Yes, fair enough.

The pipeline looks strong, and there is a good variety of deals. We're simply expressing our perspective on this.

Right. And then the other question I was going to ask you is that it looks like you're kind of consistently on that growth trajectory that you laid out at your Analyst Day back earlier this year. But operating margin leverage looks quite healthy. So I'm curious, as we think about the progression of operating margin, maybe some positive seasonality into the back half of the year, will you take any upside on operating margin, let's say, we go above that 24% and invest that back? Or are you willing, Brian, to kind of drop that through the model? Just curious how you're thinking about it.

We're not going to change those near-term targets that we laid out. We feel good about those and confident in what we communicated. And again, in Q1, we were a little bit behind on our investments. We're going to catch up. We're already doing that in Q2. We would expect more leverage in the back half of the year, especially with our subscription renewal opportunity and other revenue tailwinds. But again, just to reiterate, we're comfortable with what we laid out during our January investor event.

Your next question comes from James Fish of Piper Sandler.

So HP bought Zerto this quarter, it reminds a lot of us out here about what happened with Dell kind of pre-EMC. What can you say about the impact here? What's the exposure to HP as a partner? And how does the deal potentially change the possibility of this partner moving forward?

Sure, that's a great question. I want to emphasize that HPE and Commvault have a very strong partnership, and that commitment remains unchanged. Recently, we were named the 2021 HPE GreenLake Momentum Partner of the Year, which is significant for our continued collaboration on their key priorities. The acquisition highlighted the importance of data management, whether through Zerto's offerings or ours, which are critical to our strategy. We have had disaster recovery capabilities integrated into our core technology and as a standalone product for some time now, and we are seeing positive momentum. For example, our customer base has roughly doubled year-on-year, and the number of protected workloads and virtual machines is nearly double compared to last year. This demonstrates strong traction with our disaster recovery product. Competition remains a vital aspect of this industry, and that situation has not changed.

That's great. Can you discuss the approach for Metallic's go-to-market strategy compared to the rest of the portfolio? Is it reasonable to say that we're approaching a $50 million run rate for the business?

We'll provide more information on Metallic soon, although not during this call. It's becoming a standout in our offerings, and we've added over 300 customers compared to last quarter. We're heavily investing in this product and its capabilities, and the growth is strong. That's all I can disclose at this moment. We are analyzing trends regarding cross-sell and up-sell opportunities and workloads related to our products and within Metallic. We're observing many positive patterns, which we'll share soon. The main point is that we're engaging with our existing customers as they recognize the value of a SaaS-based solution. We're also acquiring new clients, many of whom are new to Commvault, which is encouraging. Our service provider partners view this as a vital offering that allows for quick implementation. While I can't share specific numbers, I can say we are very satisfied with our progress.

Got it. I can't say I didn't try, Sanjay, but...

Your next question comes from Jack Andrews of Needham.

I wanted to see if you could provide some more color on the strength you talked about in the sub-$100,000 deals. If you could just maybe elaborate on what products are resonating and how do we think about the expansion rates from that group of customers.

Jack, it's Brian here. Thank you for your question. We observed a broad contribution from both the Americas and EMEA. This aligns with our unbundled product portfolio, which is resonating well with the channel. We are experiencing an increased number of velocity deals coming through our pipeline, which is encouraging. This will be a strategic focus for us going forward. We aim for a healthy balance between larger enterprise deals and those below $100,000. It was a strong quarter in that regard, and we anticipate continued growth as we expand our platform over time.

Perfect. So maybe just to follow up on that then. I mean, could you just speak more broadly to how this multiproduct portfolio may be changing your land-and-expand motion? You also certainly had some strength with large deal sizes at the high end. Are you seeing changes with ASP customers are perhaps starting their journey with Commvault? And then how do we think about the trajectory of expansion rates over time?

Sure. This is Sanjay. I mentioned this briefly in my prepared comments. We're observing that customers are really embracing what we refer to as the Power of And. Our portfolio offers capabilities and flexibility that combines an on-premise engine like HyperScale X with the SaaS-based delivery of Metallic. As customers progress in their journey, whether they start in the cloud and then add on-premise solutions or vice versa, we are finding significant opportunities to expand with Metallic, especially in protecting Office 365 workloads. Once we secure those workloads, customers often look to implement additional functionalities on-premise or incorporate on-premise workloads. We're witnessing the Power of And effectively benefit customers across various workloads, which enables us to reconnect with our customers and present them with more complementary capabilities than we could a few years ago. This is particularly relevant in the context of ransomware, which is a major concern for every customer. Existing HyperScale X customers have a straightforward way to back up an immutable copy of their data in our cloud through what we call the Metallic Cloud Storage Service. This provides them with an additional layer of protection automatically integrated with their core HyperScale X capabilities. They don't have to be Metallic customers, but they can utilize Metallic Cloud Services delivered via SaaS on their on-premise systems. We're seeing a diverse range of capabilities being utilized, mixing and matching between cloud and on-premise, and I believe this is the pattern we will continue to observe, giving us an early-mover advantage.

Your next question comes from Eric Martinuzzi of Lake Street.

I wanted to focus on the operating expenses as we look ahead to Q2. Before we discuss Q2, I would like to clarify something from Q1 regarding one of the add-backs. There was a minor restructuring charge in the quarter. Could you provide some details on that?

Yes, Eric, it's Brian here. It wasn't really material for us in terms of the restructuring charge so we didn't really consider that to be something that we're focused on. It's really an ongoing thing as we move resources to our center of excellence in India. And it's really just something that's going to be ongoing. And then with respect to just the Q1 spend in general we were impacted by the hiring in our COE. We weren't able to add resources there. Obviously COVID was impacting India. We're going to start catching up on that in fiscal Q2.

Okay. That may partly answer my next question, which was regarding the expected rise in expenses for Q2, particularly in relation to the Center of Excellence. Are there other areas where we are investing, such as direct sales or channel sales?

Yes. Absolutely. We're going to be investing in go-to-market Metallic. There's going to be some type of return of normalized expenses as we come out of this pandemic and also in the channel as well in marketing.

Okay. I have a second question. Regarding the repurchase program, it was relatively small in comparison to Q4, where you had $90 million in Q1, up from $62 million in Q4. Was that entirely driven by seasonal cash flow spending? Should we expect that level to continue into Q2?

Yes. I mean we had a full quarter of activity in our fiscal Q1 on the share repurchases. Remember, we announced that at the end of January, so we had two full months of activity in fiscal Q4. We had full three months in fiscal Q1.

The next question comes from Steve Enders of KeyBanc.

I just want to check on what you are seeing out there in the labor market. It sounds like there's some catch-up that you're seeing in the quarter. But I guess, how is that also more broadly impacting customers and their ability to get deals done?

I'm trying to understand how the labor market is affecting our customers and how we engage with them.

So I guess two parts to that. Just one, how are you finding the current hiring environment and the labor market and your own ability to hire? It sounds like there is some catch-up spend that's happening there, but also how is that impacting your ability to work with customers.

Over the last quarter, there have been many discussions within the company regarding our future workforce policies. We are clarifying how we want to structure our teams, whether that be remote, hybrid, or in-office. These conversations are crucial, and people are right to focus on them. As I mentioned earlier, we have historically had a significant number of employees working remotely or on a hybrid basis, even if we didn't label it as such. Those employees would come into the office when necessary, while others worked strictly on-premise. We have now formalized this approach, providing more flexibility for our current and prospective employees. We are also investing in infrastructure and collaboration tools, recognizing that the work environment is evolving. We believe this will enhance our ability to attract the talent we need. The fluctuations in the labor market last quarter were influenced by both these changes and ongoing uncertainties related to COVID.

It's good to hear that spending is picking up in the second quarter and that hiring is now possible. Regarding the Metallic aspect and the customer base, I would like to discuss further how you plan to drive expansion within those customers and the increased adoption rates you're observing for additional products, as well as how that has evolved since the Metallic launch a couple of years ago.

We have continued to push forward with innovation around Metallic. Since the product launch and over the past four to five quarters, we've expanded geographically, enhanced features, and broadened workloads, including support for various clouds and achieving FedRAMP certification. We have not decreased the capabilities that Metallic can offer. Additionally, we emphasize the Power of And for our existing customers with on-premise workloads, enabling them to mix and match solutions effectively. As organizations are naturally inclined to adopt SaaS-based workloads with Metallic, they may also want to manage some on-premise data or shift data to the cloud. We focus on providing seamless integration so customers can adapt as needed. A crucial aspect of this is our development of the Metallic Cloud Storage Service, allowing existing customers to easily access the Metallic Managed Service and create air gap copies from a single interface. This simplicity is critical, especially in an era where IT professionals are increasingly expected to manage tasks remotely. Utilizing multiple point products complicates issues, while our solution offers a unified approach that operates smoothly across all workloads, whether in the cloud or on-premise.

This concludes today's conference call. Thank you for participating. You may now disconnect.