Good day, and thank you for standing by. Welcome to the Commvault Fiscal 2024 Earnings Conference Call. 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, Head of Investor Relations. Please go ahead. Morning, and welcome to our earnings conference call. I'm Mike 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 the call, Commvault's financial results are presented on a non-GAAP basis. A reconciliation between GAAP and non-GAAP can be found on our website. Thank you for joining us. Now I'll turn the call over to Sanjay for his remarks. Sanjay?

Thank you, Mike. Good morning. I'm pleased to report our Q1 results met our expectations and position us well for fiscal year 2024. Let me share some highlights. Total ARR, the metric we use to measure the growth of our recurring revenue streams, increased 15% year-over-year to $686 million. Our subscription ARR grew 32% year-over-year to $500 million. Metallic, our hyper-growth SaaS platform grew ARR 72% year-over-year and now exceeds 4,000 customers. All of these showcased the strength of our subscription-based recurring revenue model that we've been driving to over the past several years. And we did it while delivering 22% EBIT margins and continuing to return cash to shareholders through share repurchases. Our strategic objective is clear: to be the leading cloud-first data protection company in the industry. This requires constant innovation, execution excellence and the ability to rapidly evolve with the ever-changing data protection market. Our customers have reached inflection driven by 4 major forces that are shifting the data protection demands and expectations of the modern enterprise. One, they're experiencing unique and complex challenges on their hybrid cloud journeys. Two, customers shouldn't have to choose between software and SaaS. At this point, it should be a natural and seamless decision with a modern unified platform. Three, the world of data protection and data security are converging and require customers to consider a new approach. And lastly, the advancements in artificial intelligence have opened the door to improved customer experiences and increased value. Let's discuss each of these. The first and perhaps most important is the industry-wide move towards the hybrid cloud. According to a recent report, 82% of IT leaders say that they have adopted hybrid cloud, nearly half of which are embracing multiple public clouds. As a result, data is distributed across multiple environments. It's fragmented and in flight. Managing this new reality can become untenable in cost, complexity and security delivered at scale. To manage all of this, today's hybrid enterprises are doing nothing at all or a patchwork of anything from basic cloud-native backup to point solutions. Some SaaS, some software, each intended to solve a piece of the puzzle. Rather than holistically simplifying and managing everything, this only increases more complexity and cost. This is where Commvault comes in. Which leads me to the second major force. Customers require the power and simplicity of a single as-a-service solution. Today, customers are forced to make unnatural choices that are inefficient and unsustainable. Instead, they need the best of both software and SaaS in a single solution. Our cloud-based data protection platform does just that as software or SaaS on the same control plane. Not only do we help customers reduce complexity, our unified platform has the best total cost of ownership and greater value than any solution that we compete against, cloud-native or software. This is revolutionary for the industry and positions us as the company to beat within the category. And both existing and new customers are embracing this technology. I'll discuss 3 examples. First, we won an M365 deal with Netcare, a publicly traded South African healthcare company. The company cited the simplicity and cost efficiency of our single platform versus the existing cloud-native solution as the key decision-making criteria. Second, a SaaS-based student learning system chose Commvault to drive 6-figure cost savings versus its cloud-native tools. Third, a Fortune 1000 food manufacturer and an existing Commvault software customer expanded with our SaaS solution to protect thousands of Office 365 users. With each of these customers, we were the natural choice, given our proven mission-critical capabilities, our ability to operate between technologies and workloads our cost advantages, and our capability to accommodate future cloud use cases on our platform. These examples are consistent with the trends we've seen every quarter since the launch of our SaaS platform. 40% of our SaaS customers use another Commvault product, and 30% use multiple SaaS offerings. Software and SaaS are complementary and accretive to our business, which brings us to the third force. As the line between data protection and data security blurs, customers are rethinking their approach to modern cyber resiliency. Ransomware threats are on the rise again in 2023. Data from cryptocurrency trading firm Chainalysis indicates cyber ransom payments more than doubled in the first half of 2023. And a report by Cybersecurity Ventures noted that cybercrime will account for $10.5 trillion in costs by 2025. Of course, ransomware is only part of the modern era of pervasive autonomous threats in conjunction with other malicious data exfiltration and data destruction activities. This is increasingly driving the need for a layered security approach that includes predictive threat analytics to defend both backup and production workloads and ironclad cyber resilience in the case of a breach. No amount of preemptive defense can take the place of unfailing rapid recovery, and no amount of security is 100% successful. The two must operate hand in hand. Building on the early success of our Threatwise Cyber Deception offering, in June, we offered new security capabilities across our portfolio. These were designed to help customers proactively and reactively secure, defend and recover their production workloads while strengthening their backup infrastructure. These advanced security features are managed and delivered through the simplicity of our new cloud command interface, which provides global visibility and smart insights across all workloads, monitoring backup health and security posture. We also expanded our security ecosystem to include product integrations with Microsoft, Palo Alto, and CyberArk. While others in the industry provide limited point solutions, Commvault offers a platform that protects and enables customers to recover both production and backup environments. Finally, the fourth force impacting data protection is the topic that's driving an unprecedented frenzied adoption of AI across every enterprise. The rise of generative AI is ushering in a new era, one that is increasingly automated and autonomous and moving faster than one can imagine. We've been using AI and machine learning for years in our technology and operations. Further leveraging AI-driven automation across our platform, we can help customers rapidly recover and also constantly optimize, manage, and control every aspect of their data protection capabilities. We're continuing to incorporate AI-based roadmaps across our offerings, and we'll take a very considered point of view around the right way to apply this new technology as it matures. Our organization's secure, defend, and recover their most precious asset, the data, is fundamentally changing these forces. The bottom line is we can no longer look at each separately. The future of our industry depends on our proven ability to offer a seamless, automated, and cost-effective approach to these hard problems. In the fall, we'll be announcing some exciting capabilities and offerings that will further empower customers and redefine the industry. With that, I'll turn it over to Gary to discuss the numbers. Gary?

Thanks, Sanjay, and good morning, everyone. Coming off a strong finish to fiscal year '23, we are off to a solid start to fiscal year '24. As a reminder, we have recast our P&L presentation effective this quarter, which is led by our term license software and SaaS offerings, which are now approaching 50% of total revenue. The revenue from these arrangements is referred to as subscription, and combining them in a single line item allows the investment community to have an enhanced understanding of our results. Our fiscal Q1 results were driven by 11% year-over-year growth from our subscription business, which increased to $97 million as a result of the accelerating contribution of SaaS revenue. Q1 perpetual license revenues were $13 million. Our go-to-market motion is led by subscription. So perpetual license sales are generally sold in certain verticals and geographies. Q1 customer support revenue was $77 million, which includes support for both our term-based and perpetual software licenses. The year-over-year decline was in line with our expectations, as a result of the cumulative impact of the strategic conversion of certain perpetual customers to our subscription offerings. Moving from revenue results to ARR now. Total ARR in Q1 was $686 million, an increase of 15% year-over-year, outpacing our annual growth expectations. In Q1, subscription ARR, which includes both term-based arrangements and SaaS contracts, grew 32% year-over-year to $500 million, crossing a major milestone and nearly doubling over the past 8 quarters. As Sanjay noted earlier, SaaS ARR continued its strong growth, up 72% year-over-year to $113 million. SaaS net dollar retention for Q1 was 118%, with our SaaS offerings being a primary driver of customer expansion. Now I'll discuss expenses and profitability. Fiscal Q1 gross margins were 82.9% and reflect a 70 basis point year-over-year impact of our accelerating SaaS revenue, which carries a higher cost of sale than software. Fiscal Q1 operating expenses were $119 million, down 3% year-over-year. We ended the quarter with a global headcount of approximately 2,800 employees, including additional inside sales reps we onboarded during the quarter to drive our velocity SaaS motion. We are managing our people, facilities and third-party expenses by focusing investment on our most critical resources. We will continue to evaluate our resource base against the market demand environment. Non-GAAP EBIT for Q1 was $44 million, and non-GAAP EBIT margins were 22%. The strong earnings result was driven by continued operating expense discipline relative to our top line revenue. Moving to some key balance sheet and cash flow metrics. We ended the quarter with no debt and $275 million in cash, of which $81 million was in the United States. Our Q1 free cash flow was $38 million, up 76% year-over-year. Key drivers of free cash flow are deferred revenue from SaaS and the strength of our subscription software renewals, which typically include upfront payments on multiyear contracts. In Q1, we repurchased $51 million of stock under our repurchase program, representing 135% of Q1 free cash flow. Now I'll discuss our outlook for fiscal Q2. We continue to believe that ARR and free cash flow should be viewed as primary KPIs of our underlying business momentum. For fiscal Q2, we expect subscription revenue, which includes both the software portion of term-based licenses and SaaS, to be $95 million to $99 million, representing 24% year-over-year growth at the midpoint. We expect total revenue to be $193 million to $197 million, with year-over-year growth of 4% at the midpoint. At these revenue levels, we expect consolidated gross margin to be approximately 82.5% and EBIT margin of approximately 20%. As I mentioned on our last earnings call, we are executing some foundational go-to-market changes, which include amplifying our discrete focus on our land and expand opportunities while also scaling our motion to secure our growing subscription renewal base. We continue to hire additional inside sales reps focused solely on the SaaS velocity market as we refine our segmentation model. Some of these investments will continue into fiscal Q2, and we expect that these go-to-market refinements should drive enhanced field sales productivity as we exit the fiscal year. Our projected diluted share count for fiscal Q2 is 45 million shares. As of June 30, we have $205 million remaining on our existing share repurchase authorization. We expect to continue with our existing practice of repurchasing at least 75% of our annual free cash flows. Finally, as noted on Page 2 of this morning's earnings press release, we are also reconfirming our existing guidance for all provided metrics for the full year fiscal '24. We remain confident in our full year outlook given the ongoing momentum in our SaaS business and the seasonally stronger trends we historically see in the second half of the fiscal year, including a larger term software renewal opportunity and potential for improved large-deal traction. I will now turn the call back to Sanjay for his closing remarks. Sanjay?

Thank you, Gary. Our customers are facing hard problems as they modernize their data protection approach across a hybrid cloud environment. Our ability to offer them a streamlined unified approach that is powered by AI will be a welcome change and a true differentiator in our industry. We're the only company with a tested track record, vision, and proven execution to deliver this value at scale. Now we'll take your questions.

And for the Q&A, can we take the first question, please?

Our first question comes from Aaron Rakers of Wells Fargo.

I have a couple of quick questions. First, congratulations on a strong execution this quarter. Given the current macroeconomic environment and concerns about spending in the enterprise sector, how would you describe the linearity through the quarter in terms of deal activity? Are you noticing any deals decreasing in size or being postponed? Additionally, what is your overall perspective on enterprise customer spending at this time?

It's Gary. I can take this question. So our linearity from a fiscal Q1 perspective is what we typically see in our fiscal Q1. Some of the macro trends that other companies have mentioned, we're obviously also experiencing. But we have not seen, from a linearity perspective, the impact on that. I think we were consistent with some of the recent trends in the market is the deal size value. We do see some pressure on the ASPs of our larger deals, and most of that is driven really by term length. The quantity of the deals and the volume of the enterprise deals is still strong. It's still actually consistent with even year-over-year levels. But what we do see is a little bit of a downtick in the ASPs on compression of term as customers are continuing their journey to the cloud. They continue to focus on optimizing the workloads that they have and being able to make sure that they're ready for their next turn. And with some of that, they take a little bit of a step back, and some of the deal size lengths start to compress a little bit. Our average length of our term deals in fiscal Q1 was about 2 years.

And just to provide some context, what was that last quarter? What was that a year ago?

Yes. Our average term on subscription deals has decreased by about 10% year-over-year, and we are seeing a mid-single digits decline sequentially.

Thank you for the insights. I have a follow-up question regarding our Commvault strategy as we enter fiscal '24. I'm particularly interested in understanding the renewal opportunities and how they compare to subscription revenue from about three years ago. Could you provide some clarity on the renewal business's cadence throughout this year? It appears there might be a significant increase in the latter half of the year based on the metrics you've shared regarding renewals and net dollar retention. Please help us understand this better.

Sure. Aaron, I can touch on that also as well. The renewals in our business typically follow the linearity that we typically see across the broad portfolio of our go-to-market motion, which means that we'll see a higher renewal value in the second half. So that goes for both renewal opportunities and conversion opportunities. we'd expect probably about 60% in the second half versus relatively maybe 40% roughly in the first half. And some of the term length discussion I had on your previous question applies to the renewals. As some of our renewals also see some changing dynamics on term length as well.

Yes. The final question is regarding your operating margin, which you reported at 22% this quarter, compared to your guidance of around 20%. I understand you're maintaining a guidance of around 20% for the next quarter and have reiterated the full-year guidance of an increase of 50 to 100 basis points year-on-year. I'm interested in how you're planning for the flow-through of operating margin. Are there any additional investments you are making compared to what you had initially expected for this year? Why might we not anticipate some upside to the $50 million to $100 million continuing to flow through as we look at the latter half of the fiscal year?

Aaron, at this point, we're keeping our guidance for the full year for all the reported metrics consistent. There's obviously an opportunity for operating margin leverage and expansion, especially as the top line accelerates, which we'd expect some of that to happen, as I mentioned, more in the back half. So where I'm sitting here today is that fundamentally, all the core tenets of our business are consistent, and we're confident in where we're at for the first half. And I think maybe revisiting where we're at, exiting Q2 for the back half is what we'll look to do.

Our next question comes from Howard Ma at Guggenheim Partners.

I have a question for Sanjay and also for Gary. I'll start with Gary. I actually have two questions. The first is a shorter one. Can you explain the reason for the dip in the Metallic net retention rate? It decreased by 7 percentage points compared to last quarter?

Thank you for the question. We don't view one quarter as a long-term trend for Metallic. With a net dollar retention of 118%, we still consider this a strong result that is driving significant expansion. Typically, in net dollar retention calculations, the base continues to grow, which contributes positively. This growth means you may see the calculation stabilize around that 118%. However, we are very pleased with our expansion opportunities. We are nearing 4,000 Metallic customers, and we are excited about the potential to increase that number as we move into the second half of the year.

Okay, that's fair. My second question relates to what Aaron was asking. Can you discuss, Gary, the key underlying assumptions that give you confidence in reaching your total and subscription ARR guidance this year? As we project for the remainder of the year, can you highlight any notable year-over-year comparisons? You mentioned the renewal cycle is weighted towards the second half. Is there anything else we should consider? For example, I understand that fiscal Q3 might be a more favorable year-over-year comparison this year. Are there any additional insights regarding subscription or Metallic?

Yes, there are a few points I can address. First, looking at the current fiscal Q2, this quarter is typically softer, especially in Europe. However, as we look ahead to the second half of the year, we remain confident in the guidance provided for that period. Each quarter, our subscription revenue benefits from recognized revenue from SaaS, which strengthens the predictability of this revenue as it increasingly comes from SaaS, representing the amortization of the Annual Recurring Revenue (ARR). Additionally, we expect stronger performance in the second half, particularly regarding large deal expectations in term license software. This outlook considers the current macroeconomic trends, and we haven't encountered any significant downturn since our last guidance approximately 90 days ago. Overall, we maintain our confidence in the full-year numbers, with only a minor change noted in the term line, which I previously mentioned.

Okay. That's helpful. Sanjay, can you discuss Commvault's progress regarding its go-to-market evolution? You have established a dedicated inside sales force for Metallic, expanded partnerships with Salesforce and AWS, and maintain an exclusive relationship with OCI. Are these initiatives already delivering benefits for Metallic, or are they expected to drive growth in the future?

Little of both. So these are investments. They are fueling up multiple engines of growth for Metallic. Traditionally, our salesforce has carried the bag for Metallic alongside our partners. We're seeing great progress with the large hyperscalers on go-to-market across the world actually. And we are also building out our own velocity inside sales engine as one of the other engines. So they're all coming together nicely in different stages. And we think over the course of the year, you'll see us share more about how these are working and coming together. So it's a strategy we set, I think, late last fiscal year, and we're rolling it all out as we speak. So we're quite pleased with where we are.

Our next question comes from Jim Fish from Piper Sandler.

Gary, for you, with going through the transition, I know we've talked about this at great length, but where are you with perpetual maintenance contribution? And really, the crux of my question is when you expect perpetual maintenance to be the minority in the sense of ARR and revenue trends start to converge as opposed to the large divergence we have this year? And is there any way to think about what you're seeing with perpetual maintenance renewal rates versus this point last year?

Yes. Thanks, Jim. I can handle that. So a couple of different pieces, I'll talk to you first, and I'll get to your specific question on revenue. But first, if you take a look at ARR, we're now up to well over 70%. We're approaching 75% of our ARR from perpetual from the non-perpetual base, so from subscription and SaaS. So you can see we're making excellent progress there. When I translate that to the P&L, and specifically how that gets reflected into that customer support revenue line, a larger portion of that continues to be driven by subscription. And if I kind of take a step back and can maybe quantify that for you, about a year ago, I would say about 70% of our customer support revenue was driven from perpetual contracts. That's now down to 60% a year later. So we're driving a minimum of about 10 points change in that balance. So I think where you're going is as we kind of roll that forward a little bit over the next 1 to 2 years, we'll start to see that subscription to be the primary driver and more than the majority of what's driving that. Some of what you're seeing, Jim, if you look at kind of the year-over-year growth of that customer support line, you see it kind of start to moderate, right? It's kind of in line with the expectations of that customer support line, but it's starting to moderate with the annual decrease that we're starting to see on a quarterly basis.

That's very helpful. And Sanjay, for you, how is the new marketing campaign going in terms of building net new pipeline? And is there any concern around the Office 365 competitive environment that you have some of your competitors out there being aggressive on price or even Microsoft coming in and just one day kind of bundling it into, say, like an E5 or E7 or whatever they want to come up with at that point?

Well, Jim, hopefully, you've seen our new marketing campaigns, which are much more bold and upfront. They are having a significant impact on the funnel and the pipeline. We're seeing a lot of engagement with our freemium SKUs on Metallic, and everything is working as intended. There's greater visibility around our efforts, and overall, we're pleased with our new marketing approach and the positive effects it is starting to have. There's a lot of excitement. Regarding Office 365, I believe you're referencing Microsoft's recent announcement concerning some archival capabilities, in which we are involved. It's primarily a platform announcement that legitimizes the need for Office 365 backup, something customers were previously led to believe was unnecessary. In reality, clients need a comprehensive data management lifecycle for one of the most utilized applications across enterprises. We believe we offer the best solution for this. Competitive pressure has always existed, and it's not solely about pricing. It's crucial for customers to know where their Office data is going. While you might find a service that appears similar to ours, the data could be going to unknown cloud providers or data centers. Our solution is end-to-end, meaning all Office 365 data is managed on Azure along with everything associated with that. We see this as a strong value proposition and believe we have a great offering that integrates well with our software capabilities, which is essential for our customers. It’s not a standalone solution, and we also have competitive SKUs.

Our next question comes from Eric Martinuzzi from Lake Street Capital Markets.

Yes, Sanjay, I’m curious about the geographic outlook. Looking at Q1, the Americas are roughly flat, and international is up about 1%. Are we expecting any changes in that based on the full year guidance? Will we continue to see similar growth rates for the two different geographic segments?

Eric, it's Gary. I can jump in and handle the question on geographic. Yes. So the performance overall for fiscal Q1 was roughly the same. The Americas, as you stated, was roughly flat year-over-year. International was up 1% year-over-year. Within international, relatively though, we're seeing stronger results throughout Europe relative to Asia Pacific. As I think about trends geographically into the second half, I would expect a little more growth out of the Americas. As a lot of the renewal opportunity we have, we have a much higher renewal opportunity in our subscription software business, which gives us some of that transparency into the opportunity in the second half, but much of that is concentrated in the Americas hub region.

Okay. And then you talked about continued investment in sales into Q2. Can you give us some specifics there as far as the number of reps that we currently have and how many more we plan to add in Q2?

Yes. So Eric, if I think about some of the work that we're doing within go-to-market, it's really driven around that discrete focus that we're trying to provide in our business and trying to build and enhance new routes to market. So much of what we're doing is reallocation of resources through the business to provide that discrete focus tied to 3 key areas. One is driving net new land and expand business. And second is continuing to secure our renewal motion. And the third is building out that velocity motion solely dedicated to SaaS. So if we think about where any incremental, net new investments are primarily coming from, it's primarily coming from the third, as we build out that inside sales motion to drive that velocity piece of the market dedicated to SaaS. So all of that is reflected within the guidance. Much of that happened during fiscal Q1. And there's just some final pieces that will move towards into fiscal Q2.

Our next question comes from Jason Ader at WB.

Yes. Thank you. Sanjay, can you give us just a quick competitive landscape and market share update both for the enterprise side of the data protection market and also the mid-market?

Yes. From a competitive standpoint, I shared some insights about our direction, the market forces we observe, and how our portfolio aligns with customer needs and their challenges. Over the past few quarters, we have implemented several strategies that have distinguished us in the short term. For instance, we launched support for Data Domain Boost on Data Domain, which has significantly improved performance within our large installed base, and we are seeing strong traction with it. Additionally, some of our competitors are facing challenges in a tough macroeconomic environment. We remain committed to responsible growth while continuing to innovate and streamline our go-to-market strategies. We've increased our marketing efforts and are successfully gaining market share in SaaS, which is a growth area for us. With the new security enhancements we've introduced, our platform stands out uniquely in the market. In the fall, we plan to launch several new capabilities based on customer feedback. Overall, we feel well positioned technically, and in recent quarters, we are definitely capturing market share from some of the more traditional players.

Who do you run into the most in the enterprise? And then who do you run into most in the mid-market today?

It's never obvious who you'll encounter; it's always competitive, and you tend to see the familiar competitors. In the mid-market, we're gaining good traction with Metallic, and we're noticing some smaller, niche players as well.

Yes. Absolutely. The trends that you see from a customer support line will continue into Q2 and into the back half of the year. I would expect that the customer support line will be down on a year-over-year basis for full year FY '24, somewhere in that mid- to high single-digit range from year-over-year, which is kind of where we're currently trending now though. I think one of the things that's important and it follows up, I think one of the questions that Jim had asked about that customer support line is that is we're quickly approaching where the majority of that line will become subscription revenue related from a customer support and not perpetual. And currently, we're about 60% is perpetual. I think we'll get to close to 50-50 by the end of the year or early next fiscal year, which then helps over the longer term actually to moderate that line and some of those declines will start to fade away.

Okay. So just to be clear, when you do a term license, that's a subscription, you separate out the support part from the software and that goes into customer support. Is that the right way to think about it?

Confirmed. Yes.

Jason, it's Sanjay again. I just wanted to add one more thing. One of the things we're getting some lift from is vendor consolidation. As customers sort of look at spend and commitments and what they've got in the installed base, they're looking to consolidate. And we're a great consolidator in that space. Also, as data security spend and data protection spend come together in this environment, the TCO equation, we win. Those are some of the trends we're seeing that are assisting in giving us lift as we take share. I mean just one data point with Metallic, we've exceeded 4,000 customers. That's a customer acquisition machine. And so we are taking share. If you think that 60% of those customers are new to Commvault and 40% of those customers very quickly have another Commvault product that is not SaaS, you see the stickiness of what we've got there.

I am showing no further questions at this time. I would now like to turn the conference back to Sanjay Mirchandani, President and CEO, for closing remarks.

Thanks, Amber. This is Mike Melnyk, Investor Relations. Thanks for joining today. As a reminder, all our earnings materials are available on the Investor Relations website, and feel free to reach out to us for any follow-up. Thanks for joining, and we'll speak to you again in the fall.

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