Commvault sets revenue record – and restructures

Data protection and cyber-resilience business Commvault went well past the $300 million high-end guidance for its third fiscal 2026 quarter, with a thumping 19 percent revenue jump to $314 million. There was an $18 million GAAP profit, up 63.6 percent.

This rosy picture was punctured by a restructuring program to optimize costs at the end of the quarter. Annualized recurring revenue (ARR) reached $1,085 million, up +22 percent year over year. Subscription Revenue grew 30 percent to $206 million while Subscription ARR increased 28 percent to $941 million.

President and CEO Sanjay Mirchandani said: “Commvault delivered another quarter of healthy growth and profitability driven by record customer engagement and adoption. Customers and partners are turning to Commvault because they require an AI-enabled platform that addresses rapidly evolving identity and emerging threats, supports compliance, and brings resilience to hybrid and multi-cloud environments.”

It was a record land-and-expand quarter with 700 new subscription customers, taking the total to 14,100 subscription customers, of whom 9,000+ are SaaS customers. Nearly half of Commvault’s enterprise SaaS customers now use more than one offering, up eight to nine percentage points from last year. Identity-focused offerings now one of the largest SaaS revenue contributors, with ARR from Active Directory products more than doubling year over year.

Financial summary:

• Gross margin: 81.5% vs prior quarter’s 80.1% attributed to more SW sales
• Operating cash flow: $4 million vs $77 million last quarter, and impacted by the timing of certain working capital items
• Free cash flow: $2 million vs $74 million in prior quarter, impacted by the timing of certain working capital items
• Cash and cash equivalents: $1.026 billion vs $1.1 billion in prior quarter
• Diluted EPS: $0.40 vs $0.24 in year-ago quarter

Commvault’s CFO Jennifer DiRico left at the end of December to become EVP and CFO at global software supplier PTC, and a search for a new CFO is underway. The earnings call was handled by Mirchandani and Chief Accounting Officer Danielle Abrahamsen. The latter said “the volume and dollar value of million-dollar software deals increased year over year,” but provided no numbers. She did say:”Q3 was our best quarter ever for net new term software customer additions, and our second-best ever SaaS customer acquisition quarter.”

Then she discussed the restructuring: “In fiscal Q3, we achieved the Rule of 40, reflecting a healthy balance between revenue and profitability. Year to date, we’re operating at a rule of 41. Consistent with our responsible growth philosophy, in line with this approach, at the end of Q3, we initiated a cost optimization program, aimed to align our cost structure to the evolving needs of the business.”

We understand the “Rule of 40” is a principle that a SaaS company’s combined revenue growth rate and profit margin should equal or exceed 40 percent. The “Rule of 41” is not, unlike the Rule of 40, a recognized measure, and suggests that Commvault wanted to lower its costs so as to increase profitability.

Restructuring initiatives included workforce reductions, with a voluntary retirement program that was well received, and technology transitions. Related charges primarily consist of severance and associated employee termination costs, stock‑based compensation expense resulting from modification events, and office closure and exit charges. There will be expected one-time payments of $12 million to $15 million in Q4.

Abrahamsen answered an earnings call question about the low operating and free cash flow numbers, by saying: ”Q3 has a tendency to be one of our most pressured free cash flow quarters, and it’s really just because the way the sales cycles work with the calendar year end. We have a tendency to see more deals close in the last few weeks of the quarter, and this quarter was no exception to that. I can tell you over 60 percent of our deals actually closed in the last few weeks of the quarter. And so what you see in free cash flow is really the reflection of that.”

Also: “We had an additional payroll cycle for both the US and Canada. That’s not normal for us in a quarter.” The US is one of its largest payrolls and that also increased pressure on free cash flow. Cash flows should normalize next quarter.

Commvault was awarded its 1,600th life time patent in the quarter.

Next quarter’s outlook is for revenues of $306.5 million +/- $1.5 million; 11.4 percent up Y/Y at the mid-point. Full fy2026 year revenues are set to be $1,178.5 million +/- $1.5 million, meaning an increase of 18.3 percent of fy2025’s $996 million. It reckons its growth is definitely going to outpace the market.

Bootnote

Financial analysts on the earnings call were not impressed. Here’s William Blair’s Jason Ader: “Commvault shares are down a startling 31 percent on a slight ARR miss, noisy results overall with some moving pieces between SaaS and term license, and poor communication/guidance from management, which taken together leave investors unsettled and running for the exits. That said, the company delivered a strong quarter for new customer additions, subscription ARR growth of 24% (SaaS ARR is now more than one-third of the business), and revenue outperformance on the back of multiyear term deals (which was the main concern last quarter as duration contracted). The stock now trades at a rock-bottom enterprise-value-to-sales multiple of 3 times our calendar 2026 estimates—a nonsensical valuation in our view for a double-digit revenue and ARR grower (and Rule-of-40 business) competing well in a healthy demand environment for data backup (note: our estimates are largely unchanged). The latest communications debacle (the earnings call was admittedly a mess) only raises the importance of Commvault finding an experienced CFO.”