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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the Commvault Fourth Quarter Fiscal Year 2022 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. [Operator Instructions]
It is now my pleasure to introduce Head of Investor Relations, Mike Melnyk.
Good 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 Brian Carolan, Commvault's CFO.
An infographic with key financial operating metrics is posted on the Investor Relations Web site for 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 different and those contemplated in these forward-looking statements. Commvault does not assume any obligation to update these statements. During this call, Commvault's financial results are presented on a non-GAAP basis. A reconciliation between the non-GAAP and GAAP measures can be found on our Web site.
Thank you again for joining us. Now I'll turn it over to Sanjay for his remarks. Sanjay?
Thank you, Mike. Good morning, and thank you for joining us today. Fiscal 2022 was "The best" year in Commvault's history. Our differentiated platform and portfolio are resonating with customers and partners alike. Demand is strong, and our team is executing, enabling us to outpace and take share from the competition.
We closed the year on a high note, posting record quarterly revenue, EBIT, and EPS. Q4 software revenue of $101 million was a new milestone for the company, and we crossed $200 million in total revenue for the second consecutive quarter. Our growth was driven by the continued traction of our software and SaaS offerings, increased multi-product adoption, and through large deals. Additionally, Metallic continue to scale and contribute meaningfully to our revenue and customer growth.
As we accelerate our recurring revenue journey, we are increasingly focused on ARR as a barometer of our future growth potential. Over 80% of our revenue is now recurring in nature, and growing. At March 31, subscription in SaaS ARR increased 46% year-on-year to $346 million, and now represents 59% of total ARR. And I'm pleased to report that I in just six quarters of commercial availability, Metallic has exceeded $50 million in ARR. Its growth is extraordinary, customers love it, and we love it.
Brian will discuss the financial highlights in a moment, but let's first discuss the year ahead. Over the past three years, we've assembled a world-class leadership team with deep domain expertise in cloud and SaaS. We transformed the company through our simplification, innovation, and execution mantra. And today's data protection market, especially data management as a service is at a tipping point. This is an incredible tailwind for the company, and it is why we firmly believe our time is now. You see, it's rare to have three critical drivers converging at once. One, our heritage is grounded in solving very hard and complex data problems for customers. This has never been more important.
Two, we continuously innovate elegant and industry-leading solutions to these problems in software and SaaS. And three, our execution engine is humming as is proven by the results we're sharing today. Commvault has all this. Let me discuss these one by one. First, we solve hard problems. Our customers live in a transient world. Data is everywhere, onsite, in the cloud, in flight, and on remote devices. They're contending with multiple generations of data, and new and different workloads. Well-funded bad actors are using ransomware and other threats to take organizations, infrastructures, and data hostage. All of which are creating what I call IT collision, putting more pressure on, often, siloed IT and security teams who are entrusted to protect data while moving to the cloud.
Upstarts, point solutions and companies built through piecemeal acquisitions only create more silos. Customers look to us as a proven and trusted partner to help them on their journey. For 26 years, Commvault has helped solve these hard problems, and provided customers' piece of mind, that their data is secure and readily available. That's why government agencies that demand the highest security and capabilities, like the U.S. Coast Guard, the U.S. Air Force, and Space Ministry of Justice, all chose Commvault for their data protection needs. Second, we build elegant, world-class solutions to these hard problems. We do this for any workload and any customer environment, one provider, one platform, for a multitude of data management needs.
Our flexible architecture and single payment class removes the rigidity and complexity in their systems. Additionally, as many of our customers straddle both on-prem and cloud environments, they need a solution that can flex and scale to meet their evolving needs. Having moved several [exabytes] [Ph] of customer data to the cloud over the past few years, we enable this transformation. It is our competitive advantage. For example, in Q4, we displaced the incumbent vendors, a legacy and an upstart, and welcomed Fincantieri, one of the world's largest shipbuilders to our roster. They chose us to protect their on-prem workloads and thousands of VMs, migrate their Office 365 mailbox to the cloud, and provide cloud-based immutable copies of their data against ransomware, all through our unified platform.
And speaking of ransomware, when customers are staring down an unfortunate attack, our teams are there to help them get back to work. For example, when a Fortune 500 materials company was hit by a global ransomware attack, it was us that alerted them. Not only did we save their data, but it opened the door to an expanded relationship as we were the only provider to meet the company's ransomware, multi-cloud automation, and integration needs. But the third, and probably the most important reason I believe it is our time is our razor-sharp execution. Over the past two years, we've delivered consistent revenue growth while accelerating our transition from perpetual to subscription software.
We built a world-class SaaS franchise that has surpassed $50 million in ARR. We self-funded this while delivering 800 basis points of margin expansion. And we've gone from nine to 29 in our pursuit of the rule of 40. This is definitive proof we are a well-executing company, and is why I believe it is our time. Now, let me take a moment to discuss our portfolio.
Today, our software, combined with Metallic, offers customers the unified solutions they need to address the complexity and collision of systems, workloads, and competing IT and security priorities. They shouldn't have to choose them naturally between on-prem software or SaaS. Depending on where they are in the journey and their various workloads, they will need both. We're the only company that provides them software and SaaS as scaled with the flexibility they require.
For example, an existing Commvault customer, a multinational software and services provider, recently expanded their on-prem data management capabilities across their entire footprint, and added HyperScale X and Metallic to accelerate the cloud transition. We are now helping them protect thousands of virtual machines, [indiscernible] workload, and more than a petabyte of data in Azure. And they are doing it with one unified platform. And that is why we win. This is the Power of AND. And this is showing up in the financials. This quarter we saw 80% year-on-year growth in the number of customers with more than one product, which drives higher ASP, higher lifetime value, and higher recurring revenue. This is why we are bullish. We've put in the hard work and we are ready to lean into our future as the cloud management -- sorry, cloud data management company.
Before I turn the call over to Brian to discuss our results, I want to recognize him and the announcement we made today. Brian has enabled us to build the solid foundation we stand on today as a company. On a personal note, his is counsel to me, the leadership team, and the Board has been invaluable. And we all wish him well. Gary Merrill's appointment as our new CFO reflects the deep bench of talent here at Commvault. Gary has held several senior roles at Commvault including Chief Accounting Officer, and most recently, as Chief of Business Operations. Importantly, Gary has been leading our transformation initiatives that allow to build a modernized business platform and positioned us for accelerated growth.
Now, I'll turn the call over to Brian.
Thank you very much, Sanjay. I appreciate that. After more than 21 successful years with Commvault, I have decided that's the right time for me both professionally and personally to move on. Commvault is coming off another record year and is well positioned for success. And it gives me great pleasure to hand the CFO reins to Gary who has been my colleague and partner for the past 16 years. I have great confidence in his ability to lead the team.
Now, let's talk about the FY'22 results, the best year in our company's history. We reported record results driven by the Power of AND with both software and SaaS contributing to our accelerating growth trajectory. And we closed the year on a high note. Q4 was a record quarter. We exceeded $200 million in total revenue for the second consecutive quarter with total revenue growth of 8% year-over-year to approximately $206 million.
Software and products revenue increased 12% year-over-year to approximately $101 million. Q4 marked the first time in company history that we crossed the $100 million milestone in quarterly software revenue. Software only growth excluding appliance pass-through revenue was approximately 15% year-over-year. Fourth quarter subscription software revenue increased 45% year-over-year to approximately $77 million. Subscription license sales represented 77% of total software revenue, an increase from 71% last quarter and 59% a year ago.
We are clearly benefiting from the tailwinds of our subscription transition and our growing recurring revenue model. Revenue from software transactions over $100,000 increased 19% year-over-year, and represented 73% of software revenue. The volume of these transactions grew 14% year-over-year. And the average deal size increased 4% to approximately $327,000. We closed numerous seven-figure deals in the quarter.
Subscription and Metallic ARR grew 46% year-over-year to $346 million. And now represents 59% of total ARR. Up from 55% last quarter and 46% in Q4 '21. As Sanjay noted earlier, Metallic ARR crossed the $50 million milestone during the quarter. Total ARR increased 13% year-over-year to approximately $583 million. On a constant currency basis, ARRR was up 14% year-over-year. ARR growth has been driven by new subscription customers and Metallic.
This is an important proof point in the transformation of our company. We believe ARR is a good measure of the underlying health of the business and as a barometer of our potential for future growth. Total recurring revenue, which includes subscription software, maintenance support services and SaaS, grew 19% year-over-year to $173 million. Recurring revenue represented 84% of total revenue in the quarter, an increase from 76% a year-ago.
Now, I will discuss expenses and profitability. We reported fiscal fourth quarter gross margins of 85%. Consolidated gross margin reflects an increased mix of SaaS revenue, which expectedly carries a higher cost of sales than software. Total expenses including both cost of sales and operating expense increased approximately 4% year-over-year to $157 million. Expense growth reflected a seasonal FICA tax reset, annual merit increases, and go-to-market investments. Q4 expenses also benefited from a $5.5 million net settlement of certain legal matters. This gain is netted with related expenses in G&A. Non-GAAP EBIT increased 20% year-over-year to a record of approximately $47 million, and non-GAAP EBIT margins improved 230 basis points year-over-year to 22.6%.
Now, I will discuss cash flows and the balance sheet. For the quarter, we generated approximately $87 million of free cash flow, growth in free cash flow was driven by strong Q3 performance, growth in deferred revenue related to Metallic, and timing of payrolls. We ended the quarter with no debt and approximately $268 million in cash on the balance sheet, of which, over 70% sits overseas. In Q4, we repurchased approximately 600,000 shares of our common stock for $40 million.
Now, I will discuss our financial outlook for Q1 FY'23. We expect Q1 software revenue of approximately $89 million, and total revenue of approximately $195 million. Due to the ongoing geopolitical uncertainty, we are closely monitoring potential risks to our business, particularly customer's spending patterns in Europe. Also note, Russian operations previously contributed approximately 1% of total revenue, which is factored into near-term guidance.
We expect total expenses, including cost of sales and operating expenses to up approximately 8% year-over-year. Q1 expense growth reflects SaaS infrastructure costs and go-to-market investments to support our accelerating revenue profile. We anticipate that this will result in non-GAAP EBIT margins of approximately 20%. Our projected share count for Q1 is approximately 46 million shares.
As we start the new fiscal year, I will take a moment to update you on our progress towards the targets we laid out during our January, 2021 Investor event. At that time, we outlined our plan to transition to a recurring revenue model, characterized by sustainable growth, improved profitability, strong free cash flow, and an attractive capital return policy. I'm happy to report that we've made terrific progress. Our software and total revenue is currently tracking at or above the target, while ARR is currently tracking materially above target. And subscription software mix and recurring revenue mix are comfortably within their targeted ranges. We ended FY'22 at 29 against the Rule of 40. We are very proud of the progress we've made considering we were at just nine two years ago. This improvement was driven by accelerating revenue growth and significant margin expansion, all while scaling a hyper growth SaaS platform.
While SaaS was not a major focal point of the Investor event, I'm pleased to report that Metallic is pacing well ahead of expectations. Factoring in the success and momentum of Metallic, we now believe that FY'23 non-GAAP EBIT margins should be in the low 20% range, currently reflected in consensus estimates. We remain focused on making continued progress towards our Investor Day target of 32 against the Rule of 40 in fiscal '23.
From a capital return perspective, since the time of the event through March 31, 2022, we repurchased approximately 5.2 million shares for $367 million. FICA recently approved a new share repurchase authorization for up to $250 million of stock. In FY'23, we expect to continue with our existing practice to return approximately 75% of free cash flow over time.
I will now turn the call back to Sanjay for his closing remarks. Sanjay?
Thanks, Brian. To recap, fiscal year '22 was a record year for Commvault, and we intend to build on that momentum in fiscal year '23. Overall market demand is healthy, the power of and is resonating with customers and partners, and our team is executing. In fiscal year '23, we expect to accelerate our growth and lead the cloud data management wave. It is our year, it's our time.
Now, we will open the call up for questions.
Thank you. [Operator Instructions] Our first question comes from the line of James Fish with Piper Sandler.
Hey, guys, thanks for the questions, and nice way to end the fiscal year here. Brian, just want to actually clarify something you just said. You're reaffirming the goal of 32 for the revenue growth and the EBITDA margins for fiscal '23, which with low-20s EBIT would imply you're talking about 9% to 10% revenue growth for the year?
James, this is Brian here, good morning. So, yes, I mean we've made great progress towards our targets that we laid out in January, 2021, and we're tracking at or above all the top line ones. Importantly, our ARR is tracking well above the goal that we laid out. At this point, we're not changing 32 as an objective. And our objective is to continue to make progress towards that throughout this fiscal year.
Got it. And, Brian, it was great to work with you, and appreciate all the help over the years. Last one for me, many infrastructure peers have been seeing pressure on supply chain. And, obviously, you guys have moved the model more towards software, but there's still some hardware element with HyperScale, for example. What are you guys seeing regarding any tightening of components for Commvault or indirect impacts from project delays given the supply chain, especially -- it doesn't seem like a whole lot, but noting your lead metrics, like billings, actually showed material upside announcements? Thanks, guys.
So, let me take it, yes. Well, the past couple of quarters, we've been keeping a real eye on not just our piece of the deal, but the hardware that supports our software. And so, for the past couple of quarters, we've been able to successfully de-risk it. But it is a real uncertainty in closure times because software needs the hardware or the storage below it. And if the customers don't have delivery timescales it can matter. So, we've been keeping a tight eye on it. After Q2, we've been -- our whole forecasting process has -- takes that into account. It's not a perfect science, but we're keeping a real eye on it. The flipside is if the workload lends itself to a SaaS-based delivery, we've got Metallic, and customers lean in on that.
Thank you. Your next question comes from the line of Aaron Rakers with Wells Fargo.
Hi, guys, thanks for taking my question. This is Michael on behalf of Aaron. Looks like -- it sounds like Metallic is doing really well, going very nicely, you guys are executing on that. I'm just curious, are you able to provide any additional metrics on maybe like the deal size growth you're seeing specifically within Metallic, and maybe an update on the customer growth in the quarter?
Well, customer growth was just shy of, I think, 500 new customers last quarter. We've also got a great consistent overlap of customers having more than -- having Metallic and software, over 50% of our customers have both. And over 60% of our new customer base was brought in by Metallic. So, we're seeing, if my numbers are right, I think they are, we're seeing a great traction on size of customers, there's small, medium, large, we're seeing velocity, and we're seeing the power of and in action. At some point, we'll share more details about the deal size and other metrics that you'd be interested in, but we think sharing the $50 million ARR milestone was kind of important.
Yes, appreciate that.
Thank you. And our next question comes from the line of Jason Ader with William Blair.
Yes, thank you. And first wanted to say, Brian, good luck; these calls are not going to be the same without you, and miss you. Second, just to be clear, Brian, you're not saying rule of 32 for FY'23, you're saying that you still have that as a target, but not necessarily for FY'23, just wanted to double-check that?
It's our objective at this point, Jason. I think it's too early to change anything. We're not changing that as an objective right now. I think it really comes down to we're seeing great success from Metallic. Obviously, the margins associated with the SaaS business are a little bit different. And we may see a balance that is more pronounced as a -- as we shipped more revenue growth than margin growth, but that's -- it's too early in time to change that.
Okay.
We'll update you another time during the year, at another investor event.
Okay, so it's not guidance -- it's still the objective, but it's not guidance? Is that a right way to think about it?
Correct, right.
Okay.
That's correct.
Okay. And then was there any FX impact in the quarter or the guide, just curious because of what's going on in EMEA in particular?
Yes, no, great question. So, our growth was somewhat dampened by foreign exchange, by 200 to 300 basis points with revenue. We're factoring in current FX rates, as we speak, for this guidance. And so, we're keeping an eye on it as well.
Got you. Okay, and then lastly, on the services line, I'm just trying to do some quick math. If we just sort of divide by four on the $50 million ARR, I know that's not exact, but it's sort of rough, let's just say, $10 million to $12 million kind of revenue for Metallic in Q4 [indiscernible]…
Yes, we'll -- yes, go ahead.
I'm sorry, go ahead.
No, please.
I was just going say, and -- when I subtract that from the services line, so what I'm left is support and professional services, which would be kind of in the low 90s, which basically is flat with like two years ago. So, is there anything going on in the support and professional services side, because software is still growing, why would support and professional services be kind of flat two years later? Or am I thinking about the numbers right?
I think you're close, without being completely exact on that. I know it's not easy to back into all that. But we're seeing an accelerating SaaS growth in terms of the recognized revenue, and that's going to carry over the course of time. So, $50 million as an ARR, I don't know if you can exactly divide it by four if you take that accelerated. And on the rest of the services, what we're doing is we've been at this for several years now that we're programmatically and strategically converting many of our professional customers to new subscription in SaaS offerings. And that's showing up in the form of just accelerating recurring revenue growth and ARR as well.
And I'll just add something on the PS piece, we keep that rightsized. And as we build more automation, as we invest more into our channel, as we do more cloud-enabled delivery, our professional services continues to play an important for this rightsizing.
So, if we're going to think about like a couple years from now, on the support and professional services, forgetting about Metallic or SaaS, is it right to think about that business sort of kind of flattish over the next couple of years because you're sort of subtracting some stuff and adding some stuff, just kind of trying to figure out how to model that without Metallic? Is that -- do you have any -- can you give us any help there?
I think you're, directionally, correct in that.
Okay, thank you, guys.
Thank you, Jason. Appreciate it.
Thank you. And your next question comes from the line of Eric Martinuzzi with Lake Street.
Yes. You had a small acquisition in the quarter, wondering what the contribution was revenue-wise.
Well, firstly, I think we close it early-Feb, if memory serves me right. And we've been in the throes of integrating it and making the products more part of the Commvault framework. So, that's on track as part of the -- yes, that was our primary focus. The revenue streams that they had, that the acquisition, the company we acquired had, continue. And it's -- I'd say it's not material.
Okay. And the -- as we look out here to FY'23, just curious to know kind of enterprise appetite for large IT transformational projects, maybe versus a year ago, can you give us kind of a 30,000-foot view of that?
Increasing. I would say if I have to use one word, I would say, it's increasing. If you see the number of deals we did in the past couple of quarters over $100,000 or over $1 million, we see those increasing. And we see them being more strategic. They -- I gave three examples in my prepared comments about how customers are leveraging the single unified platform for more complex ransomware protection, for cloud-based transformation, for broader digital transformation, data management. And all of that, we are seeing more and more of that, the conversation are more strategic. The conservations involve -- just about every conversation and deal involves cloud in some form. And our track record of moving exabytes of data rapidly for customers into cloud holds us in good stead.
Okay. And then lastly for me, your investment in human capital to support the plan for FY'23, specifically, interested percentage wise or numbers wise, how are we looking at the investment in sales and customer support?
We are not going to provide the level of specificity at this point in time. But, we are focused on attracting, retaining, and building talent.
And if you -- some of the numbers you'll see, Eric, it's that for us productivity across the board in the company has been a massive priority over the past three years. And that's how we've been able to fund a lot of what we have done. And continue to fund a lot of what we wanted to. We are driving productivity. We've got a good seasoned set of leadership that understands that. We're obviously driving multi-product adoption which requires a level of sophistication in the conversations we have with customers. All of that's driving productivity. All of that's helping us resource what we need to do. So, without getting into the details, productivity has been our internal calling card.
Understand. Thanks for taking my question.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. And you may now disconnect.