Commvault Systems - Earnings Call - Q3 2025

Executive Summary

• Record quarter: revenue $262.6M (+21% YoY), subscription revenue $158.3M (+39% YoY), non-GAAP EPS $0.94; non-GAAP EBIT margin 20.8% at high end of guide.
• Results materially exceeded prior Q3 guidance (issued last quarter): revenue $262.6M vs $243–$247M guided; subscription revenue $158.3M vs $143–$147M guided; execution and product momentum (SaaS, term software volume) drove the beat.
• FY25 guidance raised on revenue and ARR (now $980–$985M total revenue; ARR growth 19–20%; Subscription revenue $575–$580M; Subscription ARR growth 28–30%); FCF range trimmed to $170–$200M (from “at least $200M”) due to FX headwinds; Q4 guide: revenue $260–$264M, non-GAAP op margin 20–21%.
• Catalysts: accelerating SaaS ARR (71% YoY; $259M), 1,000+ net new subscription customers (c.200 from Clumio), strong multiproduct adoption; new Active Directory automated recovery and CrowdStrike integration enhance platform differentiation.

What Went Well and What Went Wrong

• What Went Well

  • Subscription-led acceleration: Subscription revenue +39% YoY; term software transactions >$100k up 18% on 30% higher volume; SaaS NRR steady at 127%; non-GAAP EBIT margin 20.8% at high end of guide.
  • Product differentiation resonating: CEO cited “record-breaking quarter” and emphasized unified cyber resilience platform; Active Directory automated forest recovery and Clumio Backtrack for S3 expand use cases and TAM.
  • International and Americas strength: Americas revenue +24% YoY to $155.4M; International +17% to $107.2M; sales productivity up double digits with strong close rates.

• What Went Wrong

  • GAAP profitability mixed: GAAP operating margin 5.2% (down from 6.4% in Q2 and 8.2% in Q1); GAAP diluted EPS $0.24 vs $0.38 in Q3’24; elevated SBC ($31.2M) remained a headwind.
  • Free cash flow pressure: Q3 FCF $29.9M impacted by FX headwinds and higher tax payments tied to stronger full-year pretax income.
  • M&A dilution near term: Clumio expected to dilute operating margin by ~1–2 pts for 2–3 quarters; non-GAAP FCF outlook trimmed to $170–$200M from at least $200M, citing FX.

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Commvault Third Quarter Fiscal Year 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press the star one. I would now like to turn the conference over to Michael Melnyk, Head of Investor Relations. You may begin.

Michael Melnyk (Head of Investor Relations)

Good morning, and welcome to our earnings conference call. Before we begin, I'd like to remind you that statements made on today's call will include forward-looking statements about Commvault's 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 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 website. Thank you again for joining us. Now I'll turn it over to our CEO, Sanjay Mirchandani, for his opening remarks. Sanjay?

Sanjay Mirchandani (President and CEO)

Thanks, Mike. Good morning, and thank you for joining today's call. Q3 was another record-breaking quarter for Commvault. Total revenue increased 21% to $263 million. Subscription revenue grew 39% to $158 million. Total ARR improved 21% in constant currency. SaaS ARR jumped 75% in constant currency, and we did this profitably, recording non-GAAP EBIT margins of 20.8%. At a time where cyber resilience and data security could not be more top of mind for CISOs and IT leaders, we saw a strong uptick in transaction volume, impressive growth in our land and expand business, and an acceleration in our organic growth rate. As we look to the future, we believe that Commvault is strategically positioned to succeed and win. This is bolstered by three fundamental growth drivers. First, the cyber resilience market has never been more dynamic or full of promise. We are uniquely positioned to capitalize on this.

Today, customers face unrelenting cyber attacks, a shifting regulatory landscape, and the exponential growth of data from cloud-native and AI-generated applications. To deal with this, enterprises need a unified resilience platform that spans their hybrid multi-cloud environment. This is where Commvault thrives. Our Commvault Cloud Platform is enterprise-grade and enables customers to easily protect and secure vast amounts of data, including AI and ML data sets, across clouds, and given most customers are utilizing multiple clouds, we're innovating across all major providers. During the quarter, we announced that the Commvault Cloud Platform will be available to AWS customers. We also introduced advanced cloud backup and site recovery capabilities for Google Workspace. This builds on what we already do today with Microsoft Azure and Oracle Cloud. With respect to cloud, we're also innovating in unique ways to address critical recovery challenges.

For example, one of the most complex and time-consuming steps to recover a business after a cyber attack is rebuilding and validating mission-critical cloud-native applications. Previously, this could take weeks or months. Today, with Cloud Rewind, which includes technologies from our Appranix acquisition, customers can do this in a fraction of the time. ARR associated with this offering has more than doubled since we acquired Appranix a few months ago. Cloud Rewind has become a highly differentiated capability within our platform, which brings us to the second fundamental growth driver: the need for our game-changing cyber resilience offerings. They're unlike anything on the market, and they make our industry-leading platform even stronger. Today, customers demand predictability, fast recoveries, and solutions to address the latest threats. That's what our next-generation offerings do. Security is built in, not bolted on. We're out-innovating the competition on every level.

Let me give you an example. To be truly resilient, you need a predictable recovery plan that can be automated and used at a moment's notice, and you must be able to practice that recovery in good times so that you can be ready for the bad times. This is what we uniquely provide with ThreatScan and Cleanroom Recovery, both our core offerings on our Commvault Cloud Platform. With Cleanroom, customers love the sense of security it provides. Emerson Electric commented, "Cleanroom Recovery not only enables organizations to test their recovery plans often, but know that if they're hit, they can be resilient." In terms of addressing the latest threats, we've just announced that we will be offering customers the full and automated recovery of Microsoft Active Directory. This is absolutely critical.

Active Directory controls authentication and access to critical business systems for hundreds of millions of users worldwide. Because it is so essential, it's also become a primary target for cyber attacks. In fact, research shows it is the target in nine out of 10 cyber attacks. If hit, your business will come to a halt. Starting this spring, we plan to address this threat in transformative ways, making it super simple for organizations to recover their entire Active Directory systems. And even better, customers will be able to do this with Commvault Cloud, the same platform that today protects more workloads than any other vendor. Nobody else offers this capability on one platform. Customers are thrilled.

A spokesperson for the Nevada Department of Transportation said, "Commvault's innovation with Active Directory will provide us with the confidence and peace of mind that not only can we recover our Active Directory data, but we'll be able to do so quickly and accurately." In just one year since launching our initial Active Directory capabilities, we've seen a meaningful uptick in adoption. With our expanded offering, we're even more excited about its potential. Another innovation that has customers talking is Clumio Backtrack, which provides a revolutionary way to expedite the recovery of massive Amazon S3 data sets. Many companies are storing AI and ML data sets in S3, so having the ability to recover that data is paramount. We unveiled new automation that can rapidly revert billions of objects to a specific version at a specific point in time. Nobody else does this.

We just announced Backtrack at AWS re:Invent and look forward to sharing more in the coming quarters. These cyber resilience offerings bring even more depth and breadth to our platform. They appeal to CISOs and IT leaders alike, and they lead to the adoption of net new workloads while fueling momentum around land and expand opportunities. This brings us to our third growth driver: our strong go-to-market motion combined with an incredible partner ecosystem to scale our business globally. The strategy that we put in place to segment and refine our go-to-market motion over the last several quarters is paying dividends. Our cyber resilience marketing message is resonating with customers, and we're seeing record inflows and pipeline growth. And in Q3, we saw increased transaction volumes, strong close rates, accelerating customer numbers, and robust expansion activity.

These contributions were balanced across geographies, verticals, and market segments, from seven-figure software transactions to a record number of velocity-based SaaS wins. The result was another double-digit increase in sales force productivity in Q3. These advances are further augmented by our enhanced and growing partner ecosystem, which enables us to extend our reach globally. In Q3, we saw solid contributions from alliance partners like Hitachi, HPE, Kyndryl, and Dell. This included a large enterprise win with a healthcare provider that combined Commvault's HyperScale X on Dell hardware with our Air Gap Protect offering for immutable protection of the customer's most critical data. We also saw improved momentum with the hyperscalers as the number of marketplace transactions more than doubled. With compliance in mind, we offered a new partnership with Pure Storage, and we're actively working to strengthen integrations with leading AI providers like Databricks.

With respect to AI, we've prioritized investments in critical AI capabilities that can proactively identify anomalies, detect threats, and identify ideal recovery points to bounce back after an attack. These capabilities are pivotal to recovery and resilience. Let me take a moment to summarize the growth drivers that position us for ongoing financial success. First, cyber resilience has shaped the addressable market opportunity, and the emergence of new use cases has increased the size and accelerated the growth potential of the market. Second, in this more complex and dynamic hybrid cloud world, point products don't cut it. Our Commvault Cloud Platform offers customers depth of coverage and breadth of offerings with exceptional choice and flexible consumption. Third, maintaining our relentless focus on execution is critical to our success. This flows through all layers within our organization and extends across our growing partner ecosystem.

Our year-to-date financial performance proves that now more than ever, we need to continue these investments to further accelerate our growth profile. In closing, it's no longer enough to just recover your data. Today, it's all about enabling continuous business for our customers, from how they prepare for the inevitable disruption to how quickly they get their business up and running following an attack. This is what matters most for a modern hybrid and multi-cloud enterprise, and it is what we enable today. Now, I'll turn it over to our Chief Financial Officer, Jen DiRico, to discuss our results. Jen?

Jen DiRico (CFO)

Thanks, Sanjay. As Sanjay noted, Q3 was another excellent quarter driven by strong execution and record close rates. Our investments in growth-oriented initiatives and new product innovations are yielding positive results, as demonstrated by the acceleration in our customer additions and our organic growth rate. I want to thank all the colleagues that contributed to the fantastic results this quarter and year to date. Now I'll discuss our Q3 results and operating metrics, followed by an update on our improved guidance for Q4 and FY 2025. Please note that all growth rates are compared on a year-over-year basis unless otherwise specified. Total revenue increased 21% to $263 million, driven by a robust 39% increase in subscription revenue. The growth in subscription revenue resulted from continued SaaS momentum and significant improvement in the volume of both term software and SaaS transactions compared to the prior year.

Revenue from term software transactions over $100,000 increased by 18%, benefiting from a 30% rise in volume. This included more than a dozen wins over $1 million. In addition, we saw robust growth in landing new large enterprise customers this quarter, including Equinix, AXA, Vanderbilt University Medical Center, and DenizBank. Given the breadth and depth of offerings across our platform, we are the vendor of choice to serve large, complex enterprises that have mission-critical data sitting in on-premise, hybrid, and cloud environments. I also want to note that our investments around our velocity motion continue to bear fruit. We added a record number of SaaS customers this quarter. We're pleased with this increase in volume with the small and medium-sized enterprises as we welcome the opportunity to grow with customers on their hybrid cloud journeys. Now turning to ARR, Q3 total ARR grew 18% to $890 million.

On a constant currency basis, total ARR accelerated 21% to $911 million, reflecting an acceleration in our organic growth rate, as well as incremental contributions from Clumio, which contributed $24 million. Please refer to the appendix of our quarterly earnings presentation to review the constant currency bridge. Subscription ARR, which includes term-based licenses and SaaS contracts, increased by 29%, reaching $734 million, accounting for 83% of total ARR. This includes $259 million in SaaS ARR, which grew 71%, continuing its hyper-growth trajectory. On a constant currency basis, subscription ARR increased 32%, and SaaS ARR grew 75%. Including Clumio customers, we added over 1,000 new subscription customers, surpassing 11,000 customers worldwide, including over 7,000 SaaS customers. We continue to benefit from increased multi-product adoption among both new and existing customers.

For example, we closed a seven-figure transaction with a leading global technology infrastructure company that added risk analysis, ThreatScan, and compliance to bolster their overall cyber resilience posture. A multinational HR and workforce management group chose our Air Gap Protect, Cloud Rewind, and Active Directory to securely accelerate their hybrid cloud journey, and we closed a seven-figure deal with a national partnership of independent insurance brokers that chose Air Gap Protect, VMs, and Kubernetes to secure their cloud-first infrastructure. These are just a few examples of customers that are bypassing point solutions and top-grading vendors to utilize the extensive capabilities of our Commvault Cloud Platform for enhanced cyber resilience in a hybrid cloud world. Existing customer expansion remained healthy with a Q3 SaaS net dollar retention rate steady at 127%, driven by both upsell and cross-sell.

SaaS ARR saw notable growth from new products such as Active Directory, Cloud Rewind, ThreatWise, and other mission-critical offerings. These trends continue to support our confidence in further expansion opportunities with the newest products we announced at Shift. Now I'll discuss our consistent profitability and free cash flow, which demonstrates our commitment to a responsible growth philosophy. Q3 gross margins were 82%, reflecting our accelerating mix shift towards SaaS, which represented 29% of total ARR versus just 20% one year ago. Gross margins also reflect modest dilution from the Clumio acquisition, consistent with our prior guidance. Operating expenses of $160 million represented 61% of total revenue, consistent with prior quarter and prior year. Q3 operating expenses included costs associated with Shift in London, the onboarded Clumio employees, and our continued investments to accelerate revenue momentum, which include higher commission and bonuses on record sales results.

Non-GAAP EBIT grew 17% to $55 million, and Non-GAAP EBIT margins of 20.8% came in at the high end of our guidance range. Now moving to some key balance sheet and cash flow metrics. We ended the quarter with no debt and $244 million in cash, which reflects the previously disclosed purchase of Clumio. We are excited about the progress made towards integrating Clumio. It furthers our ability to go deeper in the cloud and positions us to capitalize on potential AI-related opportunities. As we continue to invest in our future, we remain opportunistic around technologies that further the depth and breadth of our platform. Q3 free cash flow of $30 million was impacted by material foreign exchange headwinds and tax payments made in the quarter tied to higher than projected full-year pre-tax income.

In Q3, we repurchased $32 million of stock, representing 107% of free cash flow for the quarter. Fiscal year-to-date through December 31st, 2024, we repurchased $135 million of stock, representing 106% of free cash flow. We still plan to repurchase at least 75% of our free cash flow for the full fiscal year. Given our strong results year-to-date combined with accelerating customer demand and a healthy pipeline, we are pleased to share our outlook for fiscal Q4 and once again raise our guidance for fiscal year 2025. For fiscal Q4, we expect subscription revenue, which includes both the software portion of term-based licenses and SaaS, to be in the range of $160-$164 million. This represents a 35% year-over-year growth at the midpoint. We expect total revenue to be in the range of $260-$264 million, with growth of 18% at the midpoint.

At these revenue levels, we expect Q4 consolidated gross margins to be in the range of 81%-82%. We expect Q4 non-GAAP EBIT margins to remain in the range of 20%-21%. Our projected diluted share count for fiscal Q4 is approximately 45 million shares. We are once again raising our outlook for the full fiscal year 2025. We now expect fiscal year 2025 total ARR growth of 19%-20% year-over-year. We expect subscription ARR to increase in the range of 28%-30% year-over-year. From a full-year fiscal 2025 revenue perspective, we now expect subscription revenue to be in the range of $575-$580 million, growing 35% at the midpoint with strong contribution from both term software licenses and SaaS.

We now expect total revenue growth to accelerate and be in the range of $980-$985 million, an increase of approximately 17% at the midpoint. Moving to our updated full-year fiscal 2025 margin, EBIT, and cash flow outlook. We continue to expect gross margins to be 81%-82%. We also continue to expect non-GAAP EBIT margins to be in the range of 20%-21%. From a free cash flow perspective, we expect full-year free cash flow of $170-$200 million. Our revised outlook reflects foreign currency headwinds that were more pronounced in Q3 and expected to continue in Q4. As I reflect on FY 2025, our strong year-to-date financial performance demonstrates that our strategy is working, our cyber resilience message is resonating, our team is executing, and our investments are paying off.

Looking forward to FY 2026, we are currently trending ahead of the financial targets that we originally shared, and we now expect to achieve those targets earlier than our initial plan. As Sanjay noted, we couldn't be more excited about the market and the opportunity in front of us. The revenue-driving investments we are making have positioned us to be the cyber resilience provider of choice for enterprise businesses and have contributed to our outstanding financial performance year-to-date. We remain committed to investing in these growth-driving initiatives to further accelerate our momentum in FY 2026. Now I will turn it back to the operator to open the line for questions.

Operator (participant)

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue.

If you would like to reserve your question, simply press Star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press Star one to join the queue. Our first question comes from the line of Aaron Rakers with Wells Fargo. Your line is open.

Aaron Rakers (Managing Director and Technology Analyst)

Yeah, thanks for taking the questions and congrats on another solid quarter out of you guys. So I guess, you know, Jen, I'd like to double-click a little bit on the momentum you're seeing in your SaaS customer base. A thousand new customers seems like a fairly sharp acceleration from the plus 600 a quarter over these prior two quarters. Maybe you can unpack that a little bit.

You know, how much did Clumio add to that contribution? And then also, can you talk a little bit about how many of your customers have more than one SaaS offering today and how you think about that progression as we look into fiscal 2026?

Jen DiRico (CFO)

Thanks so much for the question, Aaron, and we're really proud of our overall performance, in particular the SaaS acceleration and our organic growth rate. If we think about the number of customers we added, about 1,000, as you remarked, subscription customers, I would say to you that of the we were running about 600 in the past run rate. I would say another 200 or so, plus or minus, come from Clumio, and the remainder are all organic. So we're really proud of that.

And then in addition, as it relates to your second question around the number of products, so first of all, I would say we're really proud of the 127% SaaS NRR. It still remains about two-thirds upsell, one-third cross-sell. However, I've shared in the past that we're around 30% or so of customers have two or more SaaS products. But I would point you to the fact that we still have a lot of opportunity, specifically around some of our emerging and new products: Active Directory, Cloud Rewind. Cloud Rewind, in particular, grew 2x from the time of acquisition. And so while it's early days for us, we are very, very excited about the potential and believe we have a lot of opportunity to cross-sell into the existing base.

Aaron Rakers (Managing Director and Technology Analyst)

Yep. And then the final question, you mentioned tracking ahead of your fiscal 2026 targets.

Can you just remind us what your targets, what you've previously outlined were, and any context of the progression as we look into fiscal 2026?

Jen DiRico (CFO)

Great question. So our previous guidance has been $1 billion ARR and $330 million SaaS ARR by the end of FY 2026. I shared that we were tracking ahead of that. I think the best way to think about our growth is last quarter, I shared that we were on average adding about $30 million in net new ARR a quarter. This past quarter, we added $38 million in net new ARR on an organic basis, excuse me, on a currency basis. And so I think that's the best way to think about how we're tracking on the future.

Aaron Rakers (Managing Director and Technology Analyst)

Yep. Thank you.

Jen DiRico (CFO)

Yep.

Operator (participant)

Our next question comes from the line of Eric Heath with KeyBanc Capital Markets. Your line is open.

Eric Heath (Vice President and Equity Research Analyst)

Hey, thanks for taking the question, and glad to be on the call with you guys today. Sanjay, maybe just a big picture question. I would love to get some of your perspective on this acceleration in the business. Just curious, how much of the acceleration do you think is from external factors that might be happening in the marketplace, whether it's mergers or regulation versus better internal execution?

Sanjay Mirchandani (President and CEO)

I think the way we look at it is we do one thing for our customers day in and day out, which is make them more resilient, give them the ability to recover in the face of an attack or any kind of catastrophic situation. Ransomware attacks, cyber attacks are not going down. They're actually increasing.

What we're doing is continuing to build out our platform, Commvault Cloud, that enables customers in a hybrid multi-cloud world to be able to protect any workload anywhere and be able to recover it in a very predictable way. Our innovation in the platform is definitely a tailwind, a driver of the growth we're seeing. We're solving a really hard problem for our customers. Combine that with over the past three to four quarters, we've been quite open and transparent about the way we're aligning our go-to-market resources, driving efficiency, productivity across it, getting closer to our customers with our customer success team. I think all of that is beginning to take great shape and come together well for us. It's a combination of solving a hard problem with a good platform and executing to the best of our ability.

Eric Heath (Vice President and Equity Research Analyst)

Thanks for that.

And Jen, question for you to follow up on some of the net new ARR comments. And hopefully, this doesn't get too much in the weeds, but curious if there's anything to call out as it relates to the 3Q and 4Q seasonality because when I look at the 3Q net new ARR on a constant currency organic basis, it was similar to the prior two quarters. And the 4Q guidance seems like it implies a similar net new ARR on a constant currency basis as 3Q. So just curious if there's any reason why that seasonality should be the case when I usually think of the second half being a bit stronger with a bigger renewal base. So kind of a lot to maybe unpack there, but just any call or anything to call out as it relates to seasonality.

Jen DiRico (CFO)

Yeah, absolutely.

So I would say overall, the second half of the year, like you shared, is usually historically and seasonally stronger than the first. Q3 had an additional, a little bit of a higher renewal population. However, on average, as we think about Q4, our guidance focuses on the fact that we have strong pipeline and field execution. We're continuing to see continued momentum in both our land and expand. And our security offerings are continuing to gain a lot of traction. And then the last thing I would call out is there's really from just an organic, it's mostly organic growth, only let's say a point or two from Clumio. And I think the best way to look at the overall seasonal nature is to take a look at how our ARR continues to grow because it really helps neutralize any seasonality.

Eric Heath (Vice President and Equity Research Analyst)

Okay. Thanks. Congrats again on the organic acceleration.

Jen DiRico (CFO)

Thank you very much.

Operator (participant)

Next question from Jason Ader with William Blair. Your line is open.

Jason Ader (Co-Group Head–Technology, Media, and Communications)

Yeah, thanks, guys. Really impressive revenue growth. I guess my question is, when do you expect to see more operating leverage and maybe just some of the puts and takes as you think about the outlook for operating margin?

Jen DiRico (CFO)

Thanks for the question. First of all, I think we've shared in the past that FY 2025 was absolutely a year of investment to accelerate our revenue growth. You're absolutely seeing that in our results. Five quarters of double-digit growth. This quarter, I can walk through a little bit of where the investments went with the increased revenue acceleration. At the first, you're seeing more SaaS in our revenue profile. As we've shared before, that has a more diluted margin than overall term software license.

Second of all, we had Clumio in that mix as well, and we shared the last quarter that it would be diluted for two to three quarters. The third is the fact that we've seen massive overperformance in our revenue results, and that's related to the fact, and so you'll see additional commission and bonuses in the sales and marketing line, and then fourth, ultimately, we're continuing to invest, like I said. But if I zoom out, year to date, we're at a rule of 39. This quarter, a rule of 42. So overall, we're really pleased with the performance.

Jason Ader (Co-Group Head–Technology, Media, and Communications)

Okay. Thank you, and then one quick follow-up. Just did you say what the revenue contribution was from acquisitions? I didn't catch that,

Jen DiRico (CFO)

so we shared that Clumio was $24 million of ARR, and so if you think about that, it's approximately $6 million from a revenue perspective in quarter.

Jason Ader (Co-Group Head–Technology, Media, and Communications)

Is there any other impact from acquisitions?

Jen DiRico (CFO)

Appranix was not meaningful at that point.

Jason Ader (Co-Group Head–Technology, Media, and Communications)

All right. Thank you. Good luck.

Jen DiRico (CFO)

Yeah, of course.

Operator (participant)

Our next question comes from the line of Param Singh with Oppenheimer. Your line is open.

Param Singh (Executive Director and Senior Research Analyst)

Yeah, hi. Thank you. And thanks for taking my question. I really want to kind of dive a little bit more into the SaaS, particularly with all the cybersecurity offerings that you're putting out now. What percentage of customers or what number of modules are your SaaS customers using? Anything on the security side? Have you seen an acceleration on that front? And I will have to follow up on that in that regard.

Sanjay Mirchandani (President and CEO)

Hey, Param. Sanjay. Thanks for the questions. The platform is built to deliver what we call built-in security, not bolted-on security. And customers. And so the platform in itself enhances the customer security profile and resilience greatly.

Just as a benchmark, we're also the only provider that is FedRAMP High certified, that has gone through the stringent process of FedRAMP High. So the platform in and of itself is a very secure platform for our customers. It just raises their profile. If you look at the capabilities we're building in and of itself, features like Cleanroom, which is about recovery, Active Directory, which is about recovery, okay, and making you more secure, our AGP, our Air Gap Protect, which is our immutable capabilities on which customers can write important data and/or other things that they want to keep secure. So all of those features as examples give you more security.

The ability with Backtrack, our Clumio acquisition, to roll back billions of objects in S3 and make you in the event of an attack, all of this makes you more secure and security from the lens of being able to come back to life, recover. So the platform in and of itself is highly secure and certified. And we build great capabilities into the technology, the innovations we do that give customers optionality on more. And I'll close by saying we just announced a integration with CrowdStrike's Falcon platform, which allows us to, for example, take feeds from CrowdStrike, show it in Commvault Cloud, and then enable actions automatically if needed to either restore, move data out, do a scan, whatever action a customer wishes to take based on intelligence that we gather from our partners.

So as you can tell, the platform, we like to think of the platform as being implicitly secure with added dimensions of capabilities that we give customers options on.

Param Singh (Executive Director and Senior Research Analyst)

Got it. So if I were to put that in the context of module expansion and overall SaaS, is there some way to think about it? Are there additional modules that you intend to bring on either organically or potentially with M&A that would be a natural evolution of the platform?

Sanjay Mirchandani (President and CEO)

Could you repeat your question? I'm just trying to unpack it. I'm sorry.

Param Singh (Executive Director and Senior Research Analyst)

Yeah, sure. Sorry. This is a little bit too much. I wanted to understand in terms of module expansion, right? You talked about one or two SaaS modules.

I'm thinking in terms of security modules that could be added on, A, organically, or B, if you have any gaps with M&A that would be interesting to expand the platform.

Sanjay Mirchandani (President and CEO)

I think what we have today is second to none. Honestly, the pickup we're getting on our Cleanroom capabilities, which we innovated around Active Directory, which we just announced an enhancement to, that I think is going to be amazing for customers to feel more secure against cyber attacks. Our acquisitions through Appranix with Rewind, we call the product Rewind now, in the ability to bring back the cloud-native applications, configurations, data, all of it, and Backtrack, which I talked about a little earlier. All of these are accretive. All of these are choices customers have in a very logical way in the platform to grow their resilience profile. Okay? So it's not about one or the other.

It's a natural extension of their ability to be and their desire to be more resilient as they mature in their journey.

Param Singh (Executive Director and Senior Research Analyst)

Got it. Thanks a lot, Sanjay. I'll get back in line.

Sanjay Mirchandani (President and CEO)

Thank you, Param.

Operator (participant)

Next question comes from the line of Rudy Kessinger with D.A. Davidson. Your line is open.

Rudy Kessinger (Managing Director and Senior Research Analyst)

Hey, guys. Thanks for taking my questions. Again, I'll add my congrats in the quarter that the organic ARR growth acceleration is very impressive, the Rule of 40 improvement, etc. So very nice numbers here. I want to go back to maybe a question I was asked earlier. I know you said, I think, maybe 30% of your customers have two-plus SaaS products. I guess put differently, I'm curious, when you look over your entire subscription customer base, just what % of the data backup and recovery estate have you captured at this point?

How much cross-sell and upsell room is there, not just on SaaS, but on term license as well to continue to expand with those existing customers?

Sanjay Mirchandani (President and CEO)

Without giving too much away, Rudy, because this is a competitive space, this is a competitive area for us. As Jen mentioned, cross-sell is a massive opportunity for us. The offering that we've released, let's say, just in the last 12 months and the pipeline that we have coming out over the next six to 12 months gives us an unprecedented opportunity to go in and very seamlessly give customers access to all of that, all these new feature sets inside of the platform. So whether the customer is using software predominantly and a little bit of SaaS or landed with us with SaaS and is looking at some of our more data center capabilities, our platform is designed for hybrid multi-cloud scenarios.

We do it broader and deeper than anyone else. So short answer, without giving too much away, is everything we're building aligns very well with the way the customer grows their resilience profile with us, okay, on the Commvault Cloud platform. So if you take it apart, you'll see how these offers are tightly integrated and quite seamless in the way for customers to embrace and roll out.

Rudy Kessinger (Managing Director and Senior Research Analyst)

Okay. And then, Jen, really appreciate these constant currency disclosures. I guess in your revised fiscal 2025 ARR growth guidance of 19%-20%, what is that at constant currency?

Jen DiRico (CFO)

So I think the best way to think about overall the ARR acceleration is if I go back to the $30 million that we said quarter over quarter is the best way to think about that. And ultimately, the guidance is based off of this quarter's FX.

Rudy Kessinger (Managing Director and Senior Research Analyst)

Okay. Got it. Thank you.

Operator (participant)

Next question comes from the line of Howard Ma with Guggenheim Securities. Your line is open.

Howard Ma (Director and Equity Research Analyst)

Great. Thank you. And I want to add my congratulations as well on a strong quarter. I have one for Sanjay, one for Jen. So for Sanjay, and it's related to it's like a subset of the prior question. What is your sense of the greenfield opportunity for protecting SaaS apps and cloud-native workloads? So really on the cloud side specifically that are not already protected by a third-party vendor. And as it relates to Commvault, as Commvault continues to expand your breadth of offerings, and it's really been impressive to Google Workspace, Active Directory, Appranix, Clumio. Do you think are you guys is one scenario that you guys could accelerate SaaS net new ARR going forward?

Sanjay Mirchandani (President and CEO)

Yes. Short answer is yes, Howard. I absolutely believe that.

We are so focused on being a true hybrid multi-cloud provider for our customers that there's no workload and no cloud left behind. We're doing as much as we can to really broaden our offerings on the cloud and then go as deep as we can with all the clouds. This quarter, we announced much deeper partnerships with AWS. The Clumio acquisition furthered our capabilities with S3 on AWS, Google Workspace more recently on the app side. And we've always supported Azure at great length alongside OCI. So it's no secret. We believe that the more we have both depth and breadth for cloud-native offerings, cloud-first offerings for our customers, the safer they are. A lot of customers, actually, cloud data is the one that's less exposed as customers move to the cloud, get more sophisticated in their offerings, go beyond snapshots.

Offerings like our Rewind, which was the Appranix acquisition at its heart, really allow customers to not only in a single click protect the application, the data, the prioritization of the resources, the configuration, and then be able to test and bring it back at will across clouds. So there's a lot we've built and there's a lot we continue to build in there. Backtrack, for example, the ability to bring back billions of objects to a prior version in a fraction of the time it would take you to even fathom what happened. These are all groundbreaking capabilities, all cloud-first. And we'll continue to drive that and make it seamlessly available through the platform to even our software-based customers.

The customers that are still primarily in their own data centers can avail of these capabilities seamlessly through Commvault Cloud and continue to grow with us, whether it be Office 365, Air Gap Protect, Cleanroom capabilities, Active Directory, seamless.

Howard Ma (Director and Equity Research Analyst)

That's really good color, Sanjay, and it's very encouraging. In our own checks, people have told us that the Appranix and Clumio technologies are pretty unique. I said I had a follow-up for Jen, and so actually, it's related to Rudy's second question too. I promise we did not brainstorm before this. So I also want to ask the FX, the total ARR FX question another way. Because if you look at Q2, Q2, I believe the impact was a one-point tailwind, right? And then in Q3, you just disclosed it's a three-point headwind. That's like a four-point swing.

And so, is the right way to think about the total ARR guide, the raise? Maybe it's more like a four- to five-point raise instead of one- to two-point reported? I don't know if that's right. I don't know if I'm doing the math right or wrong there.

Jen DiRico (CFO)

Yeah. I think you're definitely in the ballpark. But I would just go. I would encourage you to go back to the appendix in the investor relations presentation where we state, like you said, in prior quarter, the organic on a constant currency basis net new ARR was 37. And then this quarter, 38. And so I think overall, the 30 plus or minus is the right way to think about the continued growth.

Howard Ma (Director and Equity Research Analyst)

Sorry. One last thing, Jen. Does that 38, does that include Clumio? Or is that organic constant currency or is that constant currency?

Jen DiRico (CFO)

That's truly organic net new ARR at constant currency. In addition to the $38 million, we added $24 million from Clumio.

Howard Ma (Director and Equity Research Analyst)

Okay. Got it. Thanks so much for clarifying that.

Jen DiRico (CFO)

You're very welcome.

Operator (participant)

Next question comes from the line of James Fish with Piper Sandler. Your line is open.

James Fish (Managing Director and Senior Research Analyst)

Hey, guys. You guys have seen much consolidation in calendar 2024 in the space, including a few deals yourselves. Yes, Sanjay, for you, how are you thinking about the opportunity for further consolidation? And Jen, on your side, not to continue to talk about this, but if I take Clumio and given the disclosures around Appranix and the filings and factor in the FX changes, we're getting closer to 17% organic constant currency growth, which is actually similar to the last few quarters.

Is that the right way to really think about sustainable growth for the business, especially as you're talking about the billion target being achieved earlier than expected?

Sanjay Mirchandani (President and CEO)

Okay. I'll go first. I'll go first, Jim. Your question around consolidation, do we say, how do I think about further consolidation? I mean, if we're looking forward, and when we look forward on the platform, there are areas that we definitely think, whether it be AI-based data sets, AI application backup, large data lakes, they're going to require very different technologies to protect and be resilient with than something we did five years ago or even three years ago or something we did with Kubernetes three years ago. So one size doesn't fit all.

As much as our innovation engine is on fire, there are some good technologies out there like Clumio, like Appranix that actually bring incredible value to our customers very quickly. I also believe that in this business, and we're seeing a lot of focus on in our space now, we were the only player in the public markets for a long, long time. What we learned, if we learned anything, was clearly single workloads don't win. You need breadth and depth of workloads and environments to really be valuable to customers because that's how you protect. You can't have partial. You need to be completely covered and completely resilient. We think that that's going to be key too. We're very happy with the acquisitions we've made. The Appranix, in a few months, we've doubled the revenue, the contribution from that.

With Clumio, everything we've seen is great and the pipeline is growing.

Jen DiRico (CFO)

Thanks, Sanjay. Then, Jim, to your second question. First of all, I would highlight the fact that, yes, you're right. Our FY 2025 results include not only our organic performance and a few points from Clumio. So we sit at between 17 or 18% on an organic growth rate. As you think about going forward, I think 15% ARR growth year over year is not a bad place for you to be as we think about just overall our organic continued contribution.

Sanjay Mirchandani (President and CEO)

We'll have more.

James Fish (Managing Director and Senior Research Analyst)

That's helpful.

Jen DiRico (CFO)

We'll share more in the next quarter.

James Fish (Managing Director and Senior Research Analyst)

Sounds good. Sanjay, just circling back, some concerns. Obviously, we're talking about IT budgets for 2025 here, but there's some concerns around how Europe looks.

So how should we think about the growth in Europe this year versus last, especially in light of a lot of those entities having to go through the DORA regulation this past month?

Sanjay Mirchandani (President and CEO)

Yes. I mean, DORA has been coming for a while. So we've been working with customers for not this quarter. We didn't start this quarter. We've been working for a while to really make sure that they were ready for the compliance that they had to do as an example. And all over the world, there's different regulation that customers have to abide by. If you looked at our business this past quarter, it was quite evenly spread between America and the international. Europe actually had a pretty good quarter for us this last quarter.

And without getting too much into 2020, our fiscal year 2026 and the rest of calendar year 2025, we're not looking at any substantial changes between our assumptions so far.

Operator (participant)

Next question comes from the line of Thomas Blakey with Cantor Fitzgerald. Your line is open.

Thomas Blakey (Managing Director and Research Analyst)

Hey, guys. Thanks for squeezing me in here. Great quarter. My question is on term license. My first question is on term license. I just wanted to double-click on that. Sanjay, if you could, what are you seeing in terms of renewal conversations? How are those going? And specifically, want to know about the color related to expansion. You called out expansion. Obviously, it's working on the SaaS side. But on the term license side specifically, how is cyber kind of helping with term license renewals? How does the renewal pipeline look?

In the past, capacity has been the main driver here, kind of 105%-110% NRR. What can we expect here and what are you kind of seeing in the nearer term? I have a follow-up.

Jen DiRico (CFO)

I'll start and just let you know that on a software term license, Q3 was very, very strong for us. We continue to see strong inflows. Q3 has historically been a strong renewal quarter for us, and that continues to be the case. Overall, from an NRR perspective, that 105%-110% is still absolutely the right ballpark.

Sanjay Mirchandani (President and CEO)

Yeah. And more qualitatively, what we've done is this year, we've built out a customer success organization that is working very closely with our customer base on making sure that they are resilient, that they have the latest and greatest technology, they're enabled, and that we're working closely with them to make sure that the best of what we have, they have access to. So that's helping really with the conversations around renewals, pipeline around renewals. Our newer offerings are very, especially the ones that give them Air Gap Protect, which is our immutable storage, gives them Active Directory protection. These are very accessible and important add-ons that enable the cycle. So far, as Jen said, quantitatively, our renewals last quarter, that's all we could talk about, were super healthy. And we think they're going to continue to be a solid business for us.

Thomas Blakey (Managing Director and Research Analyst)

And just to qualify there or summarize there before I get to the second question, with all the new product and packaging that Gary's working on, all these new cyber products, on the term license side specifically, can we expect kind of maybe that 105%-110% to expand going forward now without offering guidance? And just again, I'm wondering qualitatively from your conversations, Sanjay?

Jen DiRico (CFO)

I think I'll step in here. I think the best way to think about our overall NRR for software is still in the 105%-110%. What I would point you to is the opportunity to support our both hybrid workloads and our SaaS NRR of 127% and the opportunity to continue to push our cross-sell motion.

Thomas Blakey (Managing Director and Research Analyst)

Yeah. Yeah. That's super impressive. And thank you for that, Jen. Follow-up question is on margins like everybody else has been harping on.

I just wanted to say, if we kind of look out, first and foremost, what was the Clumio kind of headwind on maybe operating margin here in the current and next quarter, especially the next quarter that we're in now? And if you look out kind of fiscal 2026, Jennifer, how are you balancing growth and operating leverage there with all the moving parts there? That'd be helpful. And thank you again. Great quarter.

Jen DiRico (CFO)

Great question. So first, I'll answer the question around Clumio. We said it would be dilutive for a couple of quarters, two or three quarters. I would say a point or two is the right way to think about dilution on the margin side of things. But if I zoom out and think about continued investment, you heard both Sanjay and I talk about the fact that the market is absolutely growing for cyber resiliency products.

The demand for our Commvault Cloud products absolutely resonating. We continue to see robust demand from our customers. And also, we see a really strong execution from our own team, increased close rates, double-digit productivity. All that to say that when we're in a decision, we win the majority of the time. And so as we think about FY 2026 investments, of course, we will be balanced. But at the same time, we know that we want to be in incrementally even more decisions because we know the market, it's the right time for us to continue to capture market share.

Sanjay Mirchandani (President and CEO)

And at the risk of repeating ourselves, we're clipping the Rule of 40 consistently. And we're very proud of that because as much as we're growing 21% on the top line, margins still are very, very healthy. And we're making balanced investments.

We've always had responsible growth, and we're continuing with that trajectory.

Thomas Blakey (Managing Director and Research Analyst)

Very impressive. Thank you.

Sanjay Mirchandani (President and CEO)

Thank you.

Operator (participant)

And our last question comes from the line of Aaron Rakers with Wells Fargo. Your line is open.

Aaron Rakers (Managing Director and Technology Analyst)

Yeah. Thanks for the follow-up. I wanted to go just on a partner ecosystem. You mentioned, obviously, this last quarter announcing engagement with AWS, with Commvault Cloud Platform. You also referenced Microsoft Active Directory. I'm curious, as you think about these opportunities, Sanjay, does it take a while to see these start to come to fruition as far as revenue, incremental revenue opportunities? Or do you think that we should be considering that as an incremental driver already starting in this current and maybe into the June quarter? I'm just curious how you think about the ramp of those opportunities.

Sanjay Mirchandani (President and CEO)

It takes time.

It takes time because you build it. You've got to make sure that the customer understands it. It fits into their buying cycle. So it does take a little bit of time. Some go faster than others. We've been very, very pleased with Active Directory as an example. That one has a lot of quick wins. Customers see the value. They're able to put it into place quickly. It's the right price point. So for some, it's a lot easier as a workload to absorb. We think it took us a while to get it all done, but Google Workspace also. That's one where I think that was built out of customer demand. And so all of this, all of this, I think, has a ramp. Nothing happens overnight. It has a ramp.

One of the other things that we're also investing in that's important because accessibility for customers, ease of use in deploying marketplaces, hyperscale marketplaces, so whether it's the Microsoft marketplace or the AWS marketplace, supporting those also enables us to be able to get product into the hands of customers faster because it's a natural way for them to acquire.

Aaron Rakers (Managing Director and Technology Analyst)

Yep. As a quick follow-up, just characterization of the competitive landscape. Who do you see the most and who do you see as the kind of opportunity set that you're able to displace?

Sanjay Mirchandani (President and CEO)

We have been very clear that what we focus on is resilience. And resilience equates to the customer's ability to recover their business, their continuous capabilities, their connected businesses. We do that in a scalable way within a hybrid multi-cloud enterprise. I don't see people do all parts of that.

They don't do everything we do with the scale we do with that, which is why we've been here in the public markets since 2006, very clearly good at what we do. We have 1,100 patents in that space. So we take that innovation and we take the way we bring things to market very seriously. So Beanroot, Backtrack, these sort of technologies, I don't think are available with our competitors. So our job, FedRAMP High, we're the only ones who have that certification. These are the kinds of things that make us very different and valuable, I believe, to our customers. So we're going to keep going that route. We're going to keep separating ourselves with great innovation. And we look, we're kind of excited about the future.

Aaron Rakers (Managing Director and Technology Analyst)

Thank you.

Operator (participant)

That concludes the question and answer session. I would like to turn the call back over to Mr. Melnyk for closing remarks.

Thanks. Thank you, everyone, for joining this morning. As a reminder, you can look at our earnings presentation available on the Investor Relations website to get a constant currency bridge. And we'll be available for questions, and feel free to reach out. Thank you again.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.