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Commvault earnings disappoint again

Commvault generated $180.4 million in revenue last quarter, which was its biggest revenue quarter ever but still missed Wall Street’s expectation of $182 million. The company blamed the small shortfall on large million-dollar deals that were pushed out during the September quarter and then failed to close in the December quarter.

The backup and data management company’s revenue represented an 8% increase over the prior year and 7% sequential increase. Commvault lost $59 million in the quarter, which CFO Brian Carolan attributed to two large non-cash income tax charges.

“We had a good sequential increase in our software growth, solid billings growth and strong operating cash flow,” CEO Bob Hammer said on the Commvault earnings call with analysts. “I’m also encouraged by our progress on certain key strategic initiatives, including the launch and early traction of our Commvault HyperScale appliance and good funnel build with our Commvault HyperScale software.”

This is the second straight quarter that Commvault missed expectations.  While Commvault’s revenue miss was not as large as in the previous quarter, Hammer said his company’s inability to close big deals by the end of the quarter caused it to fall below expectations again.

“As we have discussed for many quarters, we are currently reliant on a steady flow of large six- and seven-figure deals, which come with additional risk due to their complexity and timing,” he said.

Hammer said some of the large deals from the previous quarter did close last quarter, but not as many as he expected “and close rates were below historical levels,” he said.

A Wells Fargo Securities analyst report called the Commvault earnings “modestly disappointing” but said the vendor remains positioned for growth.

“Commvault’s modest revenue miss was driven by an increase in subscription contributions, which accounted for 20 percent of total software license revenue and the impact to revenue reflects lower pricing on subscription versus traditional perpetual licenses,” the Wells Fargo report stated. “Our conversation with Commvault management noted that the payback period on subscription licenses are about three to five years.”

Hammer said the move to a subscription pricing model has confused some customers.

“While we also need to improve our close rates on these deals, large deal closure rates will likely remain lumpy,” he said. “We are also moving to new pricing models. While we are happy with the progress we are making on subscription pricing, our transition in pricing models has cost some market confusion, which we are rectifying.”

On the Commvault earnings call, Hammer said his focus for growth for the coming year is to help large enterprises move to the cloud and mitigate risk from cyberattacks such as ransomware.

Commvault is also counting on its HyperScale Appliance, which is built on Fujitsu hardware that is virtualized via Red Hat Linux and uses the Red Hat Cluster OS for a scale-out file system. The HyperScale platform hit the market in late 2017 and hasn’t generated much revenue yet.

Hammer denied Commvault’s closing problems are due to tougher competition. Besides large data protection vendors such as Veritas and Dell EMC, Commvault is also under fire from rapidly growing rivals Veeam Software, Cohesity and Rubrik.

Commvault HyperScale launched at least in part to battle similar integrated appliances from Rubrik and Cohesity.

“We bump into them every day,” Hammer said when asked about those smaller rivals. “I mean it’s the lower end of the market, but we clearly see those competitors out there. And fortunately we got into market relatively quickly with our HyperScale appliance.”

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