CVLT

Hello, welcome to the Commvault Q4 for year 2026 earnings conference call. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, just press star followed by one on your telephone keypad. If you would like to withdraw your question, press star one gain. Thank you. Now I would like to turn the call over to Michael Melnyk, Vice President of Investor Relations. Please go ahead, Mike.

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. All 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. I'll turn it over to our CEO, Sanjay Mirchandani, for his opening remarks. Sanjay.

Good morning, and thank you for joining us. We had a strong finish to the fiscal year, delivering results at or above our guided metrics while continuing to build momentum across the business. In the fourth quarter, subscription ARR increased 27% to $989 million. This was led by another quarter of strong growth from our SaaS business, which grew 42% to reach $400 million in ARR, a milestone for Commvault. Subscription revenue grew 20% to $208 million, and we generated a record free cash flow of $132 million in Q4, resulting in $237 million for the fiscal year. We're growing at scale while also generating strong profits and cash flow. We believe this combination reflects the health of the industry, the strength of our platform, and the durability of our model.

Now, let me take a step back and talk about what's driving this momentum. In one word, it's data. Data is the lifeblood of every organization. When it's down due to an outage, cyberattack, or human error, business comes to a halt. Organizations today are facing a variety of challenges with their data. First, data is scattered across environments, on-premise, at the edge, and in the cloud, expanding the attack surface for bad actors. Second, cyberattacks continue to grow in volume and sophistication. Adversaries are getting smarter and stronger. Compromise is almost certain. Third, identity has become one of the hottest new threat vectors. This is compounded by AI as non-human identities outnumber human identities by 50 to one. Commvault helps organizations address today's challenges by protecting, identifying, securing, and when needed, rapidly recovering their data. These challenges aren't static.

With the rise of AI, we're in the most important technology shift in modern history. AI creates more data, more access, and more risk, directly increasing demand for protection, governance, and trusted recovery. We see AI as a powerful tailwind for Commvault because it amplifies the importance of what we do. In an AI-driven world, if your data is compromised, your AI is compromised. Commvault provides the picks and shovels that empower customers to adopt AI securely and responsibly. We do this in a variety of ways. We protect the datasets used for AI and a broad spectrum of AI workloads. We help customers leverage AI to detect threats faster, recover at greater scale, and automate resilience operations. We help customers activate AI data securely for use with models and agents, and we bring governance to AI data.

For example, with our Satori acquisition now fully integrated into Commvault Cloud, customers can monitor and enforce agents' access to data. Additionally, as customers embrace and deploy AI, they're also focused on simplifying their technology stack. Enterprises don't want a patchwork of fragmented tools and products. They want the best unified platform to bring it all together, Commvault Cloud. Commvault Cloud unifies data protection, data security, identity resilience, and recovery all on one scalable control plane. Increasingly, more customers are standardizing on our platform as evidenced by growth we see across the business. Let me shine a light on some of the major growth drivers for Commvault, which will extend into fiscal year 2027 and beyond. First, we continue to add new subscription customers to our platform. Second, we're expanding and driving multi-product adoption across our SaaS base.

Third, we're seeing strong momentum with emerging revenue streams, including identity resilience. Now I'll discuss each of these in more detail. First, we added over 2,500 subscription customers in fiscal year 2026. The growth-oriented investments we made over the past two years paid off. In the on-prem market, we're winning against other vendors while seeing customers return to Commvault after upstarts fail to live up to the hype. For example, in Q4, one of the world's top 50 law firms returned to Commvault because an upstart overpromised and underdelivered on products that were quote on the roadmap and did not work. This customer is now leveraging our software and SaaS solutions, including a complete suite of data security, identity resilience, and recovery offerings. Second, we're making steady progress in driving multi-product adoption, a core pillar of our growth strategy.

This is especially true in our SaaS business. The percentage of Commvault managed SaaS customers using more than one offering increased to 48%, a 500 basis point improvement from Q4 of last year. For example, in Q4, we added a large virtual charter school that could not securely or efficiently manage its multi-cloud architecture with native hyperscaler tools. They chose Commvault to help manage their multi-cloud estate with the addition of Air Gap, Threat Scan, and Cleanroom Recovery to meet their resiliency requirements. In fiscal year 2027, we're doubling down and incentivizing our sales force to build on this multi-product momentum. In terms of monetizing new offerings, we're seeing healthy momentum as identity becomes a primary target for attackers. Our Active Directory, Entra ID, and Office solutions are landing new customers and expanding existing.

In Q4, Active Directory was once again one of our fastest-growing SaaS offerings, with ARR more than doubling year-over-year. Collectively, our identity resilience and data security offerings represented 33% of net new ARR in Q4. For example, after a competitor suffered a crippling ransomware attack, a Fortune 500 retailer determined its resilience posture was too complex and costly. In Q4, they purchased Commvault's Active Directory Protection because it provided lower TCO and reduced recovery time from two days to under 90 minutes. As identity threats continue to evolve, this will continue to be an area of focus and innovation for us in fiscal year 2027. In closing, Commvault provides customers with a single unified platform that's essential for today's diverse data environments and tomorrow's AI-driven applications. Let me leave you with a few key takeaways.

First, the market is getting bigger by the minute. AI is driving more data, more complexity, and more risk, increasing the need for resilience. As data grows, so does Commvault. Second, Commvault Cloud is the differentiator. Customers are consolidating fragmented tools and standardizing on a single platform for data protection, data security, identity resilience, and recovery. Third, we're delivering durable high-quality growth. We're scaling SaaS, expanding within our customer base, and doing so with improved margins and strong cash flow. That is why we believe we're well-positioned to win in the AI era. Now I'll turn it over to Gary Merrill, who's back as our CFO, to discuss our results and outlook. We welcome him and Geoff Haydon as our new President of Customer and Field Operations. Gary.

Good morning, and thank you for joining us. For those who I've not yet met, I served as Commvault's CFO from 2022 through 2024 before moving into the Chief Commercial Officer role. I'm excited to return as CFO, especially as we close fiscal year 2026 with strong momentum. I look forward to working with you as we continue to drive disciplined execution to capitalize on the growth opportunities ahead. Our Q4 results demonstrated accelerating SaaS growth, improved profitability, and record free cash flows. I will discuss our Q4 and fiscal year 2026 financial metrics using our existing reporting definitions. Additionally, please note that we will transition to the new financial reporting effective fiscal 2027 that I'll discuss later in my prepared remarks. Turning to our fiscal Q4 results.

I'll start by discussing ARR and free cash flow, which we believe are the North Star metrics. We encourage you to evaluate these metrics on an annual basis, which is aligned to how we plan and manage our business. In Q4, subscription ARR increased 27% to $989 million. On a constant currency basis, using FX rates for March 31st, 2025, we added $53 million of net new subscription ARR, our strongest performance of the fiscal year. Within subscription, our SaaS ARR hit a major milestone, growing 42% to $400 million, reflecting both new customer growth and healthy expansion from existing customers. We continue to make meaningful progress in multi-product adoption, a core pillar of our growth strategy. As Sanjay noted, 48% of Commvault managed SaaS customers are using more than one product.

This adoption is supported by a strong uptake of our identity resilience and data security solutions, which represented 33% of net new ARR. Our SaaS net dollar retention improved to 122%, highlighting our ability to expand within existing accounts. Total ARR, which includes subscription ARR and the maintenance associated with perpetual licenses, increased 21% to $1.12 billion. On a constant currency basis, using FX rates as of March 31st, 2025, we added $44 million of net new total ARR during fiscal Q4. Moving to free cash flows. Q4 rebounded to a record $132 million, reflecting strong collections aligned with focused working capital management. Full year fiscal 2026 free cash flows were $237 million, growing 16% year-over-year.

In Q4, we accelerated our stock repurchases to 3 million shares for total consideration of $259 million, reflecting our confidence and focus on delivering long-term shareholder value. This brings total FY 2026 repurchases to $446 million, representing over 4 million shares. I'll discuss our income statement performance. Q4 total revenue increased 13% to $312 million. Subscription revenue grew 20% to $208 million, led by a robust 43% growth in SaaS revenue to $93 million. Term software license revenue grew 6% against a challenging comparison driven by strong renewals and existing customer business. We continue to see strength in large enterprise accounts with revenue from transactions over $100,000 increasing 9%, driven by higher deal volumes. Turning next to profitability.

Q4 consolidated gross margin expanded 30 basis points sequentially to 81.8%. This reflects continued improvement in SaaS hosting margins driven by scale efficiencies and ongoing product optimization. Q4 operating expenses increased 11% to $187 million, representing 60% of revenue, an improvement of 100 basis points year-over-year. This reflects benefits of our pulse optimization program aimed to expand margins and allow for reinvestment in strategic growth initiatives. Non-GAAP EBIT in Q4 was $66 million, representing a non-GAAP EBIT margin of 21.3%. Looking ahead, we are entering fiscal year 2027 with strong momentum. With our subscription transformation largely complete, our financial priorities are to scale subscription ARR, expand margins, and increase free cash flow.

Before reviewing our outlook for fiscal year 2027, I will briefly discuss three updates to our financial reporting that will be effective in fiscal Q1. These changes are outlined in our earnings press release and on slides 25 to 27 in our earnings presentation. First, we have recast certain revenue and ARR classifications. The primary adjustment moves all term software-related support revenue into subscription revenue alongside term software licenses and SaaS revenue. Perpetual support revenue is now presented on its own line in our P&L, which directly correlates to our non-subscription-based revenue and ARR offerings. These recast changes are being made to, one, provide a consistent view of our offerings across subscription revenue and subscription ARR. Secondly, align financial reporting with our subscription-based business model. Finally, they reflect how we manage the business internally.

There are no changes to total revenue or total ARR for any periods presented. Under the recast presentation for fiscal year 2026, subscription revenue was 82% of total revenue and subscription ARR was 90% of total ARR. To assist with year-over-year comparability of our new financial reporting effective in fiscal year 2027, we have provided a two-year quarterly look-back in our earnings press release and earnings presentation, all recast amounts. For modeling purposes, an Excel download is also available on the investor relations website. The second change in our financial reporting is to streamline our KPI framework with emphasis on four key guided metrics: subscription ARR, free cash flow, subscription revenue, and non-GAAP EBIT. We will also provide supplemental total revenue and diluted share count guidance to assist with P&L modeling.

Going forward, we will no longer disclose total ARR as the remaining perpetual maintenance stream will be less than 10% of our business. In addition, our subscription ARR guidance will no longer peg to the beginning of the fiscal year FX rate. The final change to our fiscal year 2027 reporting will be a transition to subscription net dollar retention measured on an annualized basis. This includes both our term software and SaaS offerings and will align net dollar retention metrics with our subscription ARR and revenue disclosures. For context, fiscal year 2026 subscription net dollar retention measured on an annualized basis was 114%. I'd like to reiterate that we will guide subscription ARR and free cash flow annually, which matches our business planning and management approach.

Term software accounts for most of our ARR and upfront revenue. Quarterly results may fluctuate due to factors such as the mix between software and SaaS transactions, renewal timing, and shift in contract duration in any discrete quarter. Typically, these fluctuations even out over the fiscal year. Moving to our fiscal 2027 outlook using our new financial reporting. For fiscal Q1, we expect subscription revenue of $263 million-$265 million, representing approximately 15% year-over-year growth at the midpoint. This would result in approximately $310 million of total revenues. We also expect EBIT margins of approximately 19% and a diluted share count of approximately 42 million shares.

For the full fiscal year 2027, we expect subscription ARR growth of 18%-19% year-over-year, representing a range of $1.20 billion-$1.21 billion. Our subscription ARR growth percentage will continue to be led by our SaaS offerings, which we expect to exceed a $0.5 billion of ARR by the end of fiscal 2027. We expect subscription revenue in the range of $1.115 billion-$1.125 billion, representing approximately 15% year-over-year growth at the midpoint. As I mentioned earlier, we will also guide total revenue to assist with financial models. We expect total revenue of $1.30 billion-$1.31 billion.

In addition, for fiscal 2027, we expect non-GAAP EBIT margin of 20.5%, free cash flows of $250 million-$260 million weighted towards the second half of the fiscal year, and diluted share count of approximately 42 million shares. Finally, our board refreshed our share repurchase authorization for $250 million. We currently expect to allocate approximately 60% of annual free cash flow to share repurchases, subject to market conditions. In closing, I am excited to return to the CFO role and look forward to working with you as we continue to execute with discipline and capitalize on our growth opportunities ahead. We operate in a large and growing addressable market. There is meaningful potential to acquire new customers and expand with our installed base through increased multi-product adoption.

I'm focused on executing those opportunities with a clear path to continued margin expansion and strong free cash flow generation while driving shareholder value. With that, I'll open the call for questions. Operator?

We will now begin the question-and-answer session. If you would like to ask a question at this time, simply press star followed by the number one on your telephone keypad. We will pause for a brief moment to compile the Q&A roster. Our first question comes from the line of Todd Weller with Stephens. Todd, please go ahead.

Thanks. Good morning, and thanks for the question. You mentioned kind of the success with multi-product sales and changes in compensation. Could you walk us through, at a high level, your FY 2027 kinda sales comp structure and kinda what behaviors you're trying to drive differently versus FY 2026? Thanks.

Hi, Todd. It's Gary. Nice to meet you. I will take this. I'll hit the multi-product question that you were asking. Before I do that, I'll hit sales compensation first. We don't disclose the discrete components of our compensation plan, but what I can tell you is that our compensation plan for the field is geared towards two items specifically. The first is new customer acquisition, and the second is cross-sell, so platform expansion in our hybrid environment. They're the two key pillars of our compensation plan for FY 2027. As we look back to FY 2026, we're seeing great progress that we want to build off on multi-product expansion, especially with our customers that are now licensing at least two of our SaaS products.

That's now approaching 50% of our SaaS customers and our ability to cross-sell and the opportunity to drive growth from cross-sell is a key pillar of our FY 2027 strategy.

Thank you.

Our next question comes from the line of Aaron Rakers with Wells Fargo. Aaron, please go ahead.

Yeah, thanks for taking the questions. I have two real quick. I guess, you know, maybe going back to late last year, I'm curious, you know, with your Cloud Unity platform, what you've been seeing in terms of customer engagements, customer interest, any kind of metrics you can share on those platforms, obviously the Satori acquisition integration? Just curious, as we think about these multi-product platforms, you know, what you've seen in terms of, you know, the products introduced late last year?

Aaron, good to hear from you and good to talk to you again. When we think about what we announced at Unity, objective number one is to drive customer engagement. To give the ability for our customers to leverage our platform now truly across any workload, whether it's on-premise or the cloud. Our primary measurement of that is really driving new subscription customer growth. Okay? We've added about 2,500 new subscription customers in the past 12 months. This quarter alone, it was roughly 600. How we start to monitor and measure that going forward will be across metrics of multi-product adoption as well as our ability to cross-sell. Not just up-sell, because now we're starting to see the acceleration on the cross-sell motion as well.

Aaron, Sanjay here. Let me just add a little bit more to that. The platform, if you remember, the Unity in the platform was about making sure we could give customers a singular capability to take data security, identity resilience, and data recovery as one unified offer, whether they deploy it in SaaS or they deploy it on-premise. You know, identity resilience and security, as an example, represented 33% of our net new ARR last quarter. We also added hundreds of Active Directory customers. Our ARR on Active Directory doubled year-on-year, and it's one of our fastest-growing offers in the history of the company. Without getting into absolute specifics, it gives you a sense that the design of Unity is exactly where customers are leaning in on.

Yeah. Then maybe as a quick follow-up, you know, Gary, now that you're back in the CFO seat, I'm curious, you know, I know you gave guidance for the full year at 20.5% operating margin. How do you think about the leverage that you see in this model? You know, is there any kind of thoughts of, you know, driving incremental operating margins? You know, could we see maybe mid-20, you know, plus % operating margin in the Commvault story as we look forward? Thank you.

Aaron, thanks for the second follow-up question. First, guidance for FY 2027, 20.5%. Our belief when thinking about guidance is setting our guidance at the level that we believe and that we're confident that we can tame. As we think about long-term, especially as we scale our SaaS platform, there is leverage in this business model. AI, from both an internal perspective and a customer perspective, will give us great operating leverage opportunity. AI is driving data growth, it's driving efficiencies in our product, and it's driving efficiencies in how we talk to customers every single day. The short answer is yes. We're not at the point where I'm ready to give multi-year guidance, but a baseline of 20.5 is a good starting point, and we look to expand on that from there.

Yeah. Thank you.

Thanks, Aaron.

Our next question comes from the line of Michael Romanelli with Mizuho Securities. Michael, please go ahead.

Hey, guys. Thanks for taking the questions. Just maybe on, you know, the 27 guide. Can you walk through, you know, some of the top line puts and takes for us? You know, as part of that, you've announced some, you know, recent leadership changes, obviously. You know, how did that factor into the thought process and logic around setting guidance? Can I have a follow-up?

This is Gary. I'll take the first part. If I zoom up to maybe go very at the macro level, as we thought about our plan for FY 2027, our objective is to build durable growth. Okay? The plan is built along the foundation of durable growth. There's three pieces that will help us drive those growth vectors. First is AI data growth. AI is driving massive amounts of data growth. That becomes a tailwind to our business. When you combine that with the complexity of hybrid environments, it makes what we do from a resiliency perspective even more important. When you add the third vector of AI cyber-led attacks, which brings in the resiliency and security aspects, you have three growth vectors that build the foundation of the plan.

As we think about how we measure that success, you heard in my prepared remarks about our North Star metric of subscription ARR. That is the key way we will measure it. We're a hybrid business and we're expecting continued momentum in that business. As we serve our customers, whether they're on-premise or in the cloud, we expect acceleration to continue to come, especially from our SaaS business.

Yeah. I'll add a little bit on the leadership transition. Gary, you know, as Gary was our Chief Commercial Officer, helped build the plan, was intricately involved with all aspects of both the guidance as well as where the revenue numbers we were forecasting. Geoff was a board member, and on the inside was, you know, had full visibility as to what we were, how, what our assumptions were and how we were thinking all through the process. We were able to synchronize the leadership transition at the start of our fiscal year at the, you know, and had both of them at our sales kickoff, which is very important from a handover point of view and consistency point of view.

For all the important things like comp plans, territory planning, forecasting methodology, it was two in the box getting it done. You know, I feel pretty good about. I feel very good actually about the timing and the leadership that we brought into the company to take us, you know, to 27 and beyond.

Got it. Thanks. Super clear and helpful. Sanjay, you've laid out what is a pretty clear AI resilience vision and, you know, more recently unveiled Data Activate, AI Protect, and AI Studio. How are you just thinking about, you know, the commercial opportunity there? Is, you know, AI a significant growth driver for you guys in FY 2027 or is the real monetization, you know, perhaps beyond that? Just, you know, would love to hear your thoughts on that. Thanks.

We're not pinpointing the exact number that, you know, we're attributing to AI because it's still early days, but it's definitely a tailwind. It's at, you know, to oversimplify it, we believe, and obviously a biased belief, that data is at the heart of AI and is driving AI models, is driving how customers use AI in the enterprise. What we're trying to do is make sure that we're giving them not only the products and the capabilities you mentioned, which are the latest, but doing what we've done for the better part of 30 years, which is protecting the components that build up the systems they use.

Whether it's the vector databases, whether it's their deep S3 buckets that they're storing data in, you know, whatever it may be, we're every day we're supporting more and more of the componentry that builds up, you know, the AI apps that they're building. We'll continue to do that to give them all the availability. Plus, with the capabilities that we've just announced, we give them agentic access to our workflows. We give them agentic access to single policy engines. We're giving them, you know, everything they need to really protect their environments with the right guardrails and be able to recover as they roll out these fairly complex AI capabilities inside their enterprises.

Early days for us in quantifying it externally, but we, you know, we feel today pretty good about the fact that it'll, you know, as long as the data keeps growing, which we think it does because of AI, what we do by way of resilience becomes front and center.

Our next question comes from the line of Eric Heath with KeyBanc. Eric, please go ahead.

Great. Congrats on the results, gentlemen, strong net new ARR acceleration. Gary, welcome back to the seat. Can you just talk about what you saw from a macro perspective, both in the quarter, given just some macro headwinds out there? Also memory is also an issue, so anything you could speak to about memory impact in the quarter. Gary, just coming back to some of the guidance philosophy and the assumptions there, just any change in the philosophy we should be thinking about? I know you addressed some of it already, just given the leadership changes, any additional prudence there? Similarly along your other question, any assumptions on macro or memory pricing that you're assuming in the guidance? Thank you.

Yeah. Eric, thanks. Thanks, and good to hear from you. I'm going to start with the last on the macro and the memory pricing. We kind of look at them as a combined. We're managing that in our pipeline. From an outlook perspective, the current trends are baked into our guidance. Now, we've been successful in being able to navigate that with our platform. We have three primary ways how we navigate supply chain or macro related to memory. First is we have a broad technical partnership with all of the major storage providers. We're able to leverage those partnerships, whether it's on supply or technical alignment as well. The depth and breadth of our platform integrations is a key competitive differentiator.

Secondly, we work with our customers to, I'll use the term sweat the asset. Even if it's a, if it's a competitive takeout and it's a fresh install, working with our customers, we're able to leverage their existing infrastructure. Okay. The third, which we think is one of our best competitive abilities, is our SaaS platform. We have the ability from a workload perspective to migrate customers to our SaaS platform, and which is kind of where we see our ability to then manage these workloads regardless of what's happening in the broader economy. On your second question, which I believe is guidance philosophy, fundamentally, I've been a part of the leadership team now for many years. As we think about how we run the business day-to-day, nothing's changed, I would say, right?

The collaboration between myself with Sanjay and now Geoff and the broader team is consistent regardless of what role that I was in. The way we think about guidance is taking a look at the market opportunity and then providing a number externally that we feel confident in.

I'll just say this, now that Gary's signed and everything, having a CFO who's been a CRO is one heck of an asset because you get a very pragmatic point of view on how to look at things. We're very happy with that.

Thank you, gentlemen.

Now our next question comes from the line of Jason Ader with William Blair. Jason, please go ahead.

Yeah. Thank you. Good morning. First I want to just applaud you guys for the shift of the term support to the subscription line. It's something that I, you know, Mike, I've mentioned to you many times. I think that just cleans things up and I think we all appreciate that. For Sanjay, you talked a little bit about or I guess, Gary, you talked about the hardware pricing. I'm just wondering, has it actually impacted deals where some of your competitors are more tied to hardware, specific hardware, and therefore, it sort of shifted deals like that were late in process towards you because of the supply availability and your sort of hardware agnosticism?

Yeah, I'll take the first shot at it. You know, I will say this, we are probably at the place in our company's history where we have the strongest relationships with our technology partners. We work with them very closely on the pipeline. We work with them very closely on the customer requirements. You know, as much as availability and pricing does cause a little bit of, you know, revisits as part of the process, we've been so far been able to manage the forecast pretty tightly in conjunction with our partners.

You know, one of the things, almost more importantly, that we can do that Gary mentioned that holds us in good stead is allowing customers because of the way our platform is architected, to sweat the asset a little longer till they can get the right setup that they need and the timing that they want and the project kickoff the way they require. If they need the resilience we provide, in many cases, we've been able to go in and just sweat out the asset, and without getting super technical, we can also let them run the control plane in any way they want so that they could, you know, they're not beholden to a particular piece of hardware. We've got that flexibility in the architecture, and it's being used every single day as a hybrid company.

Whether they're using the SaaS piece of it or they, you know, they're running it in the cloud, we're letting them work through this present sort of situation till it clears up.

Jason, to go back to your first comment about the recap, I appreciate the call-out. One of the key priorities with that is aligning our P&L to AR. Now you can specifically see how the AR momentum is translating into acceleration on the top line within the subscription. Then it's also important to give the clarity to our shareholders about the actual size now of the professional business now that it's become nominal to the overall business.

That's fair.

Great.

Great. One follow-up, on the comment, 33% of net new ARR coming from identity and data security. Can you just give us a quick report card, Sanjay, on some of the data security products, like what's going well? Where do you still feel like you've got some work? I know you have a handful of different products there, some acquisitions. Just it'd be great to get a quick report card.

Yeah. You know, I think with Unity, we really upped the ante, if you would, on how our policy engine operates across the product. When you look at Satori and what it does with data security being integrated, those, you know, those capabilities, the DSPM type capabilities are in the product, right in the product. If you look at Threat Scan, which has been something that has done really well for us, now it's been completely revamped. We've taken input from a variety of sources, including our own IP and third-party IP, to really give customers deep scanning capabilities to look at what happened.

You tie that back to Cleanroom, which we brought to market two years ago, and this generation of Cleanroom has tight integration with AGP and all the risk analysis that we can do to tell customers what happened, who touched it. Now, when you fast-forward this to agentic capabilities, a lot of companies are fixated on, you know, rolling back an agent, which is fine. That is one threat vector in the overall scheme of things that needs to be looked at in sort of cohesion to bring back to really have resilience. That's where we're going.

The numbers we shared sort of bode well for where customers' minds are and where, you know, how they're thinking about resilience because you have to look at it in an integrated way, data security, identity resilience, and true single-click recovery on large platforms.

Thank you.

Our next question comes from the line of James Fish with Piper Sandler. James, please go ahead.

Hey, guys. Topic that's coming up, of course, is hardware and cloud. Maybe just to go back to that, are you seeing customers initially actually start with the on-prem for either a net new or new deal completely, but then, you know, evaluate or turn to you guys to see what kind of cloud equivalent pricing would be just given the rising hardware costs? How are customers handling that sort of messaging? How are they handling that overall exposure to you? Is there a way to understand that penetration of cloud within subscription entirely at this point?

James, Gary, I'll start on this. As it relates to thinking about navigation. What customers want is they want resilience at the end of the day. If you start with the macro theme of what we provide is resilience. When you get into, I'll say Tier 2, Tier 3 apps, maybe not like the mission-critical Tier 1, the flexibility is there to think about the ability to be agnostic between whether they use on-premise infrastructure or they use cloud infrastructure, their own storage or even our own cloud storage. That's kind of where we see it.

When you combine that with the flexibility with the hardware partners that we have, as well as helping them sweat the assets, it becomes about the options that they have to make sure that we can keep their projects on track. To quantify, would I say that shift has been material to our SaaS business? Not yet. Okay, not yet. What it does is it keeps our project top of mind, and it allows us to continue to execute with a close plan.

Yeah, we're very unique in what we can deliver in that true hybrid capability, letting customers truly mix and match how they wish to deploy. Of course, it's a regulated industry. They have their own policy. There's a lot of things that come into play. We give them that, we give them the very unique flexibility that nobody else has, can to do what they need to do. Over time, they can mix and match. Some do.

Okay. Yeah. Just to follow back up, I know I asked a long question there, but what's the customer penetration of cloud within subscription entirely? Can you just remind us what optimizations on the product side are occurring and where cloud gross margins are now today? Thanks, guys.

Take the first part. I'll take the second.

Okay. Penetration of cloud. Cloud-native workload. If you're thinking about workloads that are now running the cloud, whether there's databases, VMs, file and objects, even our Clumio, and we think about contributions to our growth, that bucket of our cloud digital native, cloud native offerings from Q3 to Q4 was our fastest growing segment that contributed to ARR. Which shows what the ability is to move and protect cloud applications with our cloud product. Major contributor, Jim, to our success sequentially. From a margin perspective, continued optimization. I don't have the margins in front of me, but we can get them back to you. I would say sequential improvement on the margins. North Star is driving well north of 70%.

We're on pace for that over the next couple years. That's where we're focused on, is the product optimization and building that durable business of in the cloud.

Our next question comes from the line of Param Singh with Oppenheimer. Param, please go ahead.

Yeah. Hi, thank you so much for taking my question. Maybe, Sanjay, I wanted to understand the buying persona for identity resilience, is that more focused towards the CISO? Are you investing more in your security-focused sales teams, not just for identity resilience, but for some of the other workload opportunities, particularly around ransomware? Lastly, in that vein, are you also investing in R&D to fill some of the gap, technical gaps on the ransomware side, or do you feel you have a robust portfolio today? Thank you.

Hey, Param. I'll take the last part first. I think we've got a world-class platform when it comes to not just ransomware as a threat vector, but broader. Making sure that, and I don't mean to say this in any way but serious, which is regardless of the threat vector or what causes the damage to the data, our focus is to be able to bring customers back to life, recover them. It's broader than ransomware, but it definitely does ransomware, if that makes sense, okay? It does it very well. Every day, we're helping customers with it.

On the first part of your question, on the buying persona for identity is quickly becoming because of AI, is quickly becoming sort of a joint decision between the CISO organization and the classic CIO organization. Because in some cases, identity is managed by the IT organization, and now with AI applications being developed by teams or new teams sometimes, it's sort of going up in visibility. We're seeing both. We're seeing both. I'm not adding more security specialists, if you would. Over the past couple of years, a lot of the folks that have come into the company have come in from a security background.

In fact, Geoff Haydon, our President, also has a deep security background because today, you know, like I keep saying, data security, identity, and recovery are implicitly tied. We're cross-training our people. There's a lot of enablement we're doing to make sure that they can talk to the different personas, identify the right kind of conversations to have, and feel pretty good about the progress we've made. I mean, you know, we don't it's rare that we'd lose a deal because we didn't have a security capability.

Understood. Great. Thank you so much for that, Sanjay. As a follow-up, if I could, not to get into the memory side, I know you're managing the supply chain well, but a different question, right? The higher memory and component pricing does constrain budget dollars a little bit. Have you heard concern from customers where, you know, they're picking and choosing what workloads are mission-critical and more important to secure now and potentially pushing off certain workloads to the next year? Do you feel that the entire data state is crucial enough today where dollars would primarily be spent on cyber resilience first and then something else? Any clarity there would be really appreciated. Thank you.

Yeah. Param, I'll take the first shot at it. You know, anecdotally, customers are focused on resilience because you're only as good as the breadth of your coverage, okay. You know, your resilience capability increases with pretty much you have to protect everything that runs your business as mission-critical. For that, if customers are doing refreshes, they prioritize that in whatever architecture their industry allows them or their policies allow them to do. In some cases, it's not about pushing it off to next year.

It's saying, "I think we can run this through a SaaS capability, you know, that so we look at your SaaS, or we could have it hosted, and we'll write the data on-premise." Again, it comes back to the architecture, which we think gives customers the choices they need to be able to prioritize both the cost increases and the availability of memory and servers, et cetera. It comes back to that. There's no single answer. Yes, you know, obviously, if things are in spare supply or are more expensive, people do prioritize, and we're right there with them to help them through that.

Perfect. Thank you so much for that. Appreciate it, Sanjay.

Thanks, Param.

Our next question comes from the line of Yun Kim with Loop Capital Markets. Yun, please go ahead.

All right, great. Thank you. Congrats on a strong finish to the year. If you can update us on the overall partner ecosystem that you're expanding, especially around cloud service providers. I think you had some announcements on that recently, with Google and whatnot. How important is that, securing that close relationship with the three major hyperscalers in your go-to-market, especially around cyber resilience, and then especially with much of the agentic AI framework running on those hyperscaler platforms?

Hi, Yun, it's Sanjay. I'll try and address that. Our relationships with the hyperscalers are pivotal. It's very important as customers truly embark upon not just hypercloud but multi-cloud deployments, our ability to protect customers with a single platform across multiple clouds and on-premise capabilities is unique. Our hyperscaler relationships are something that we invest deeply in, okay? Both from an engineering point of view and a go-to-market point of view. Access. If a customer wants to purchase off of a marketplace, we have deep integrations into all the marketplaces. We continue to evolve the platform as customers make choices around agentic, to your point, whether it's the, you know, whether it's the vector databases, whether it's the agentic frameworks that they have, identity systems that they use.

We're continuing to build out our resilience capabilities on that so that, you know, when the customer makes that choice, we're right there with them, okay? We've done that for years, and that's always held us in good stead, so we continue to do that. What was the other part of your question? Cyber resilience. Yeah, and what we do, for example, that makes us, again, very unique from a resilience point of view is customers can write their data into our air-gapped immutable capabilities on any of the four major hyperscalers today. They can mix and match as they need to.

For whatever, for economic reasons, commercial reasons, resilience reasons, redundancy reasons, we allow them, through the same control plane, very seamlessly to be able to protect their data and their capabilities on any of the hyperscalers. You know, the abstraction is what we bring, TCO is what we bring. As you mentioned Google, our Commvault Cloud platform, you know, supports Google, but our Clumio capability, our Clumio platform, which is designed for cloud natives, which has thus far been an Amazon AWS sort of protection, has now expanded into Google. Google Cloud is also supported by Clumio, which is quite the favorite with the cloud natives.

Okay, great. Thanks for that, Sanjay. Gary, in regard to, probably a question that you probably wanted to avoid so far, but in regard to seasonality of your SaaS business for in your outlook, is there any big regional quarter when, where you're expecting a certain SaaS, upsell or even a conversion of, term license to SaaS?

Yeah. Thanks, Yun. I'll hit it. The average contract length of our SaaS deals is one to two years, so we're in that midpoint of one to two years. What that means is, as you see our SaaS AR accelerate and grow every quarter, that means that our renewal base is growing every single quarter as well. What happens is, and what you'll see is some of the acceleration in the second half of fiscal year 2026, is that as our renewal population grows, it's a natural opportunity for that cross-sell opportunity that you see and that's coming through in some of our prepared remarks. We expect that trend to continue with our typical seasonality.

As we build out and think about renewals in the second half of fiscal year 2027, the opportunity will even be that much bigger on incremental cross-sell as well.

Okay, great. Thanks for that answer. Thank you.

Marco, can you next question?

Absolutely. Our next question comes from the line of Howard Ma with Guggenheim Securities. Howard, please go ahead.

Hey, thanks. I'll keep it short. Gary, welcome back to the seat. My question is, are there any trends to call out in terms of new and renewal procurement decisions? What I'm really getting at is how comfortable are you in the initial subscription revenue and margin guide? Did you appropriately bake in? I kinda think there's three things. There's higher memory prices, there's cloud modernizations that are happening broadly, there's the potential impact of Commvault Cloud Unity on shorter contract duration. Did you appropriately bake in potential contract duration compression? Thank you.

Howard, good to talk to you again. I'm glad to be back working with you. Couple different pieces there. If you look at the renewal pool, I would say on the software side in FY 2027 relative to FY 2026, it's roughly the same or slightly bigger, but not significant. We have factored in our expectations on renewal term, like term length. What we saw in from fiscal Q3 to Q4 is roughly no change to term length, but we've modeled that out now into FY 2027. If I think about the way we've built the guidance around subscription ARR, we expect the vast majority of subscription ARR driven from our SaaS business, okay. Similar to the trend that you saw for FY 2026. Therefore, we'll continue to see acceleration in the SaaS business.

Our software business and our hybrid environment is a roughly plus or minus similar renewal pool. Then the difference will be what we expect to take from the new local acquisition on-premise.

Okay. Thank you, Gary.

Our next question comes from the line of Rudy Kessinger with D.A. Davidson. Rudy, please go ahead.

Great. Thanks for taking my question. Gary, certainly looking forward to working closer with you again going forward. Gary, you said in response to a question on memory earlier, you know, one of the three reasons you're able to navigate this is the ability to maybe cover some of those workloads from the cloud. I just wanna clarify that with respect to how much of a driver of your SaaS net new ARR in fiscal Q4 was from customers, you know, protecting on-premise workloads via your SaaS offering, as opposed to, you know, purchasing new hardware. Is that a material driver, and do you expect that to be a material driver of SaaS net new ARR going forward this year, just given the memory price increases?

Hey, Rudy, nice to talk to you again as well. Not significant in Q4. What it does, it gives us the ability to make sure that our project with the customer to help meet the resilience need stays on track. To give them that option if they need to go that way in the future, that they've scoped out the technical considerations. Not a significant to predict Q4 acceleration. That is not factored into my guide for FY 2027 either. My guidance related to FY 2027, exceeding $500 million of SaaS ARR, would exclude any significant impact from that.

Okay, super helpful. That's it for me. Thanks again.

Thank you.

Our next question comes from the line of Joseph Gallo with Jefferies. Joseph, please go ahead.

Hey, guys. Thanks for the question. Your subscription NRR was really impressive at 114%. Given the broadening portfolio, how should we think about how that trends in FY 2027 versus your sub-ARR guide of 18.5%?

It's Gary. Hey, Joseph. Nice to meet you, and thanks for asking the question. One of the recast items that I made thinking about going into FY 2027 is focusing on that subscription NRR as a key metric because as you're right, it aligns to both our revenue on subscription and the ARR. We're not modeling significant upside in that number in the guidance. The guidance generally reflects that steady state. That keeps our SaaS NRR very healthy and gives us opportunity to improve also on the software piece as well.

Awesome. Thanks. Just as a quick follow-up, I mean, it was great to hear the potential competitive differentiation with higher memory prices versus other vendors. I'm just curious, broadly, have you seen any changes in the pricing environment competitively?

No significant. If I look at discounting trends that we had during the quarter, they were consistent with the last couple quarters. It is a competitive market, obviously, as you guys do your research, but we're not seeing any incremental pricing pressure. It's more, I think as Sanjay outlined, and you even emphasized, it's navigating those cost challenges relative to the resilience budget and making sure that resilience budget is maintained as a priority versus traded off as just storage costs.

Awesome. Thank you.

Our next question comes from the line of Shrenik Kothari with Baird. Shrenik, please go ahead.

Thanks a lot. Again, welcome back, Gary. Sanjay, just in relation to overall outlook and guide, I know in prior calls you've talked about AI as a big growth driver, but it was mostly as proofs of concept within your customers. It seems now you're pushing harder. AI is driving more data, more risk. You mentioned the market is getting bigger by the minute. Just which of the use cases that you are most excited about and you're seeing real enterprise budget pull today compared to what you talked earlier? If you can sort of elaborate more across protecting AI data sets versus model flows as the recovery of agent-run workloads, also governing data access and cloud-native recovery. Just any thoughts there, and I had a quick follow-up.

Sure, sure. Shrenik, you know where I'd say in the enterprise-grade applications, we're in the early days. There's a lot of trials, there's a lot of models being used. What we're doing is getting back to, like I said in an earlier response, is making sure that we can broadly protect the componentry that customers are using or will use to build these apps. The databases, the, you know, the vector databases where the data is stored, exposing that data so they can use it in pipelines, so the newer products we have. Giving them agentic capabilities to quickly get resilience built day zero into the apps as opposed to an afterthought.

What we believe is critical in this new sort of new types of apps, AI-enabled apps that are being built, is that protection and resilience needs to be active, not passive. It needs to be on the front end of as you build the app, as opposed to in the back end of when you've got the app. You know, you mentioned many things. You know, it's like, is it risk? Is it data? Is it recovery policy? You know, cloud native? All of it. All of it. We're helping them through the process. Again, our focus is data and recovering the data regardless of what the, you know, what may have touched it. Agentic, Non-Agentic, Human, Non-Human, you know, all of that.

It's early days, it's a journey, but our goal is to be able to give customers, through Commvault Cloud, a single-click recovery of the entire AI stack. That's where we're driving to.

Great. Very helpful. Thanks a lot, Sanjay. Just very, very quickly, again, Gary, in relation to guide, I know you did mention there's field comps are geared for the next year towards both new logos as well as cross-sell platform. Just it sounds great, right? Especially given the stronger identity and multi-product momentum. Just how different is this in practice from fiscal 2026 in terms of how we are sort of fine-tuned our incentives, any success metrics around AI, identity? Just anything that you can provide there in granularity.

Yes. I can summarize this for you. The comp plan design for our field teams for FY 2027 is roughly consistent with 2026. What we do is tweak the cross-sell incentives on the products that we believe have the greatest opportunity for growth and that obviously our customers need to stay resilient. It's a tweak in the where we point them as it relates to the specific product, but new logo acquisition has always been a fundamental pillar of our comp plan.

All right. Well, thanks a lot.

Our next question comes from the line of Junaid Siddiqui with Truist. Junaid, please go ahead.

Great. Thank you, and morning. Sanjay, as frontier AI models become increasingly embedded across cybersecurity workflows and as these model providers themselves potentially push further into security, how do you see Commvault's role evolving to remain core to cyber resilience? How are you partnering with these platforms to protect customers in a more agentic world?

Hi, Junaid. you know, it's these models used right will firstly make for better software, okay. More secure software. Our focus has always been a combination, making sure that the platform we provide, the Commvault capabilities we provide are equal parts data security, identity resilience, and recovery. I'd probably take that back. I'd say more recovery. we specialize on the recovery capabilities, but it's with the same policy engine that gives you the provenance of what happened to the data to allow customers to truly recover.

Whether the agent caused something to happen or a cyber attack caused something to happen or human error caused something to happen or a corruption caused something to happen, our focus always is data out, making sure we can get the data recovered for the business. The models will make for more secure software, I believe, but what we need to do is stay focused on, and what we're focusing on is just getting customers back from anything that may have happened to their systems, at, you know, especially when you're looking at the pace at which AI changes things. I'm kinda giving you a 10,000 ft response on it, but we're obviously looking at it's a multi-pronged capability, whether it's Agentic or Cyber or just System Provenance.

You know, we're looking at all of that and making sure that our, you know, our capabilities can bring all of it back with single policy.

Great.

Mark, we'll take the next question, please.

Our next question comes from the line of Joe Vandrick with Deutsche Bank. Joe, please go ahead.

Thanks for taking my question. Sanjay, you called out multi-product adoption as a driver of growth and also touched on the momentum in your identity protection products. Can you talk about the typical deal size for identity and maybe the ACV uplift when a customer adds on that identity protection? Also, is there a way to think about what percentage of the base has adopted identity protection today? Should that adoption rate eventually get to 100%?

It's Gary. I'll jump in and answer this for you. We don't disclose the actual ASP of our identity solutions. However, what I can provide to help is that it's a good land or a good expand motion to drive the stickiness in the platform. How we think about it internally is that it's less about the individual ASP of the offering, it's more how we're driving the adoption of the platform. When you get multi-product adoption, as you would expect in any business, our ARPA goes up significantly. We'll start to give color on that in the out quarters as we get going and get more penetration. To the positive side on opportunity, we've had great success on our identity year-over-year.

The business grew about 100% year over year, and it's still a very small proportion of our install base that have adopted it. We still have a long runway of opportunity to drive that as we continue to enhance the platform with even more identity solutions. It's just not about the traditional Active Directory. When we get into other offerings like Okta and other.

Entra ID.

Entra ID, it's the whole platform approach across multi-identity solutions, which will drive multi-product adoption and then drive our ARPA, which we'll continue to talk about as we build those metrics out.

Right. Joe, just to close, I mean, just to give you a typical scenario, use case scenario, outcome-based scenario that a customer would look at. They would start with identity. They would look at Cleanroom to be able to test that identity, and they would look at AGP, our Air Gap Protect capabilities, to be able to restore data from that secure location, whether it's for test purposes or production purposes. Without identity resilience, you are, it's an incomplete solution. That's how we think about it. In and of itself, it's a starting point. It's a good land spot. It's a good expand spot if a customer already using our technology. It really shines when you look at it, at the life cycle of how a customer will use it.

Marco, we'll take our last question, please.

Our last question comes from the line of Thomas Blakey with Cantor Fitzgerald. Tom, please go ahead.

Thanks for squeezing me in here, Michael. Hello, Sanjay and Gary. Great to be working with you again. I guess my first question is on this net new ARR and constant currency metric that we, you know, heard from the company in the past. It seems like with, you know, AI increasing data, very successful push here in terms of, you know, organic growth from a new product perspective as well as M&A. It seems like if I'm looking at the moving pieces here, the new target of $1.205 billion in subscription ARR, just maybe kind of talk about what we're kind of expecting here and embedding in the guide for net new ARR on a constant currency basis into fiscal 2027. It's my first question.

Hey, Tom. It's Gary. I'll jump in. How we'll be guiding net new ARR going forward, it's really tied to subscription ARR, the overall subscription ARR. That will be an annual guide. We set up the annual guide for FY 2027 at the midpoint. That's 18% and 18.5%. Okay? If you quantify that means that the amount of subscription net new ARR for the full fiscal year 2027 will be roughly $190 million. Okay? That's kind of the key benchmark. Now, what I won't be doing is giving a discrete guide on any individual quarter. Okay?

As you've seen in our business in the past, there's gonna be puts and takes from quarter to quarter, but we'll continue to provide, and I'll continue to provide the updated view of the annual number, how we're trending against that annual number, and also NT relative mix between the software and SaaS pieces of the business. For FY 2027, we continue to expect majority of that $190 million of net new ARR for the full year to continue to be led by acceleration in our SaaS platform, which should exceed about $500 million by the end of FY 2027.

Well, super helpful and good to see the uptick there on the net new, you know, ARR basis that we can just maybe imply for fiscal 2027. Just maybe a look back at as it relates to look forward. Could you maybe expand on the market share gains that you experienced at the expense of some of the legacy players in fiscal 2026 and what you're embedding in the fiscal 2027 guide? That'd be helpful just given the dynamics there. Thank you very much. Thanks for taking the questions.

Overall, FY 2026 was a strong, net new customer, right? There was some fluctuation quarter to quarter. Q3 was an extremely strong piece of the business on net new. Q4 was more tied to our existing install expansion business. Overall, when you look out at the full fiscal year, we saw strong growth. It's, it's beyond, I would say now, the legacy players that only have on-premise because our value prop is the hybrid. It's the hybrid and managing those workloads on-premise or across multiple clouds. What you see in our subscription ARR, whether it shows up in software or in SaaS, it's our hybrid approach that's giving us the competitive advantage. We may swap out a legacy install on-premise, and that new deal will end up likely being hybrid across both on-premise and cloud.

That's why the combined subscription ARR becomes the north star metric because it will show the penetration and success of that hybrid new logo acquisition.

That's key. The hybrid is key. We believe that as AI gets rolled out broadly in the enterprise, it will continue to be hybrid.

Marc, we're [crosstalk].

There's no further questions. Okay. There's no further questions at this time. That concludes today's conference call. You may now disconnect.

Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Commvault Q3 Fiscal 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to Michael Melnyk, Vice President of Investor Relations. You may begin.

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 Systems, Inc.'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?

Good morning. And thank you for joining us. Q3 was another solid quarter for Commvault Systems, Inc. We reinforced our position as an innovation leader and garnered accolades from partners and industry analysts. Some financial highlights in the quarter include subscription revenue grew 30% to $206 million. This was fueled by a record land and expand quarter with the addition of 700 new subscription customers. Subscription ARR increased 28% to $941 million, SaaS ARR increased 40% to $364 million, and we achieved the rule of 40 with a healthy balance between growth and profitability. Our momentum in Q3 and year-to-date reflect the growing need for next-generation cyber resilience. In an AI-driven, hybrid, and multi-cloud world, resilience cannot be reactive, manual, or fragmented. It needs to be continuous, always on, and unified through a single control plane. Commvault uniquely delivers this innovation. I'm proud to share that in Q3, we were awarded our 1,600th lifetime patent. I want to thank our engineering and IT teams for their continued commitment to excellence and innovation focused on customers. At our shift event in November, we took innovation to the next level with the Commvault Cloud Unity platform release. Unity brings together data security, identity resilience, and cyber recovery on one platform all enabled by the Metallic AI fabric. With Unity, customers are now equipped to drive their res ops, or resilience operations. Res ops is a discipline that unifies operations, security, and infrastructure across the business. By bringing these silos together, organizations can plan, prepare, and recover from a disruption or cyber attack. Customer, partner, and industry feedback has been overwhelmingly positive. Dave Novak, Deloitte's cyber resilience lead said, the Commvault Cloud Unity platform brings these elements together in a way we don't see elsewhere in the market. We're pleased to team with Commvault, help joint customers respond faster, reduce risk, and confidently adopt AI and cloud at scale while advancing resiliency. IDC further validated this approach stating, we believe res ops has an opportunity to resonate with customers as it is concise, with powerful implications operational value. ResOps is a fundamentally different approach from what legacy vendors provide today. Resilience in the age of AI requires us to, one, continuously secure data at the source and monitor for anomalies. Two, control the identities human and nonhuman, that access and use the data autonomously. And three, predictably, recover data applications and operations at massive scale with the lowest total cost of ownership. Let's take a moment to discuss each, starting with data security. As enterprises embrace AI and move to the cloud, they must also grapple with evolving and more sophisticated attacks. By combining Commvault's Metallic AI fabric with our multipoint stress scan synthetic and clean room recovery offerings, customers can secure data as a source, identify, analyze, and quarantine suspicious files, monitor for anomalies, and conduct recoveries with precision so they're ready for an inevitable attack. Case in point. By embracing our threat scan and risk analysis capabilities, UNC Health, a long-standing customer, is now able to scale its security with its data growth. Saving time, reducing risk, supporting compliance, and advancing cyber resilience. Next, let's talk about identity resilience. According to CrowdStrike, approximately 80% of breaches involve compromised identities. Attackers don't start by encrypting data. They compromise valid credentials and escalate privileges. Putting identity at the center of cyber risk. Commvault Cloud's growing identity resilience capabilities enable enterprises to easily track, and mitigate unauthorized or accidental changes to identity systems like active directory, and TriD, and Okta. As Eric Beer of Jazzwares of Berkshire Hathaway company explained, Commvault innovation with identity resilience will allow us to detect, and roll back malicious identity changes as they happen. So that we can maintain reliable authentication and access control while strengthening our overall cyber resilience. In Q3, hundreds of customers embraced our identity resilience capabilities. And ARR from just our active directory offering has more than doubled year over year. In just two years, it has become one of our largest SaaS offerings. And finally, we cannot discuss resilience operations without addressing recovery. Particularly for cloud-native and cloud-bound enterprises. In Q3, we saw accelerated momentum with our cloud-native offerings including Glumio. For example, Clarity, a pioneer AI-driven predictive health chose Plumio to safeguard sensitive AI data that fuels next-generation risk prediction models. Our ongoing innovation with Clumio also speaks to our long-standing collaboration with Amazon Web Services. In Q3, we achieved AWS resilience competency in the recovery category. And we were named the 2025 AWS global storage partner of the year. Additionally, GigaOM named Commvault a leader in its cloud data protection radar. Commvault Cloud also supports recovery of massive AI workloads, and pipelines like object stores, data lakes, analytics platforms, and vector databases. In Q3, announced a new partnership with Pinecone that will bring greater resilience the vector databases within enterprise AI stacks. Delivered via Commvault Cloud, the solution will support Pine deployments across AWS, Azure, and Google Cloud. It's targeted for general availability, in 2026. We believe that AI is an emerging tailwind for us, It dramatically increases the volume of data that needs to be protected. Introduces new threats that need to be addressed, and requires a solution that brings resilience to the services, models, and databases that power AI. Our Commvault Cloud Unity platform is ideally suited to help customers address these evolving AI required. I'd be remiss if I didn't discuss our focus on data and cloud sovereignty. Over the years, we've always met our customers evolving needs. Including their data sovereignty requirements. Now we're taking it a step further by supporting regional sovereign clouds. In December, we announced that Commvault is a launch partner for the AWS European sovereign cloud. Together, our plans are to provide European organizations, with a secure solution that is purpose-built for cloud. Delivering cost-optimized resilience at scale for AWS customers. We're working closely with other partners on cloud sovereignty as well. This is an emerging space. We'll have more to say about this soon. Let me close with this. This quarter, we continue to capitalize on strong market growth through innovation leadership, and execution excellence. And we're seeing record customer engagement and adoption. We believe Commvault Cloud Unity is the breakthrough platform customers need in the AI era. And we anticipate we will finish the year with solid results that reflect both our leadership in the market and the trust our customers place in comp. Thank you. Now I'll turn it over to our chief accounting officer, Daniel Abrahamson, to discuss the financial details. Danielle?

Thanks, Sanjay, and good morning, everyone. As Sanjay highlighted, our Q3 results reflect the growing demand for our Commvault Cloud platform. As customers continue to rely on us to keep them resilient in the face of attacks, while advancing their hybrid cloud and AI journey. I'll recap our Q3 results and operating metrics. Followed by an update on Q4 and fiscal 2026 guidance. As a reminder, all growth rates are on a year-over-year basis unless otherwise noted. For Q3, total revenue growth accelerated 19% to $314 million driven by a 30% increase in subscription revenue, which reached $206 million. Subscription revenue was led by a robust 44% increase in SaaS revenue, and one of our strongest customer acquisition quarters in years. Term software revenue grew a healthy 22%, to $119 million. We saw strong growth across all geographies and customer sizes, with notable strength from large enterprise accounts. Revenue from term software transactions over $100,000 rose 25%. Driven by notable gains in both transaction volume and average deal size. Additionally, the volume and dollar value of million-dollar software deals increased year over year. Underscoring our standing as the preferred vendor for enterprise customers. We added approximately 700 new subscription customers and we ended the quarter with over 14,000 subscription customers. Q3 was our best quarter ever for net new term software customer additions, and our second-best ever SaaS customer acquisition quarter. Now I'll discuss ARR. Subscription ARR, which we believe is the best indicator of the company's health and growth, increased 28% to $941 million. This was driven by 40% growth in SaaS ARR to $364 million. Subscription ARR now represents 87% of total ARR. Compared to 83% one year ago. Total ARR increased by 22% to $1,085 million. Existing customer expansion was healthy in Q3. With SaaS net dollar retention of 121%. Consistent with best-in-class SaaS platforms. Our SaaS, net dollar retention reflects a few things. One, a growing install base, which is now over 9,000 customers. Two, the impact of rapidly adding new SaaS customers. Which is forward-looking and not yet reflected in our net dollar retention, and three, a mix shift of some product capabilities with certain early adopter customers. We saw solid momentum across our identity and resilience offerings which collectively represented approximately 30% of net new ARR. Now, I'll discuss our profitability and free cash flow. Fiscal Q3 gross margins improved 100 basis points sequentially to 81.5% which reflects a higher mix of software sales. In addition, we saw improved economies of scale and product efficiencies that we expect to continue in Q4. Operating expenses of $193 million represented 62% of total revenue. Operating expenses reflect higher commissions and bonuses on strong year-to-date sales performance and the trailing run rate of initiatives to support our ongoing growth trajectory. Non-GAAP EBIT $61 million reflecting in a margin of 19.6%. 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. Turning to key balance sheet and cash flow indicators. We repurchased $41 million of stock during the quarter. Bringing the year-to-date amount to $187 million. We ended the quarter with a diluted share count of approximately 45 million shares. Year to date, we have generated $105 million of free cash flow. Q3 free cash flow of $2 million was impacted by the timing of collections from sales made later in the quarter and an additional payroll cycle for both The U.S. And Canada. We expect this to normalize in Q4. Now I'll discuss our outlook for Q4 and our updated outlook for fiscal year 2026. For fiscal Q4 '26, we expect subscription revenue, which includes both the software portion of term-based licenses and SaaS, to be in the range of $203 to $207 million. This represents 18% growth at the midpoint. We expect total revenue to be in the range of $305 million to $308 million with growth of 11% at the midpoint. As a reminder, Q4 fiscal year 2025 benefited from several multiyear strategic land transactions. At these revenue levels, we expect Q4 consolidated gross margins to be approximately 81%. We expect Q4 non-GAAP EBIT margins of approximately 19%. Now I'll discuss our updated fiscal year 2026 guidance. As a reminder, ARR guidance is in constant currency using FX rates as of 03/31/2025. For historical comparison, please refer to our Q3 earnings presentation. We expect constant currency fiscal 2026 total ARR growth to be approximately 18%, driven by an estimated 24% growth in subscription ARR. This guidance reflects the flow through of our Q3 results and is within our prior range. From a full-year fiscal 2026 revenue perspective, we are raising subscription revenue to be in the range of $764 to $768 million. Growing 30% at the midpoint. We are also increasing total revenue to a range of $1,177 million to $1,180 million representing growth of 18% at the midpoint. Moving to our full-year fiscal 2026 margin, EBIT and free cash flow outlook. We now expect gross margins to be 81% to 81.5%. This increased range reflects continued growth in our SaaS platform. And we are increasing our non-GAAP EBIT margin guidance to a range of 19% to 20%. We now expect our full-year free cash flow outlook to range from $215 million to $220 million. This guidance reflects approximately $12 million to $15 million in one-time payments related to our cost optimization program. Finally, from a capital allocation perspective, our Board of Directors approved recommitting our share repurchase authorization back to $250 million. Share repurchases remain an important part of our capital and we intend to remain active and opportunistic in the market. To summarize, the scale and product initiatives we undertook over the last eighteen months have contributed to our improved momentum and positioned us as the cyber resilience provider of choice for large enterprises. Commvault Cloud Unity further extends our innovation leadership and we are excited to capitalize on the strong customer reception to our enhanced platform in fiscal 2027 and beyond. Now I will turn it back to the operator to open the line for questions. Operator?

At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from the line of Aaron Rakers of Wells Fargo. Your line is now open. Please go ahead.

Yeah. Thank you very much for taking the question. I have two if I can real quick. First, I was wondering if you could unpack the I guess, it's the free cash flow, but particularly the accounts receivable increase and the DSO increase in the quarter. I know you had alluded to, you know, later in the quarter kind of receivable collection. So you know, can can you unpack that? Just help me understand why DSO has gone up so much and what you saw towards the end of the quarter just given linearity?

Yeah. Hey, Aaron. This is Danielle. Good to talk to you again. So I know I talked about this in my prepared remarks, and and you you kind of hit on it. Right? But one of the things we saw this quarter and it's it's not uncommon in Q3. I'll be honest. One 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% 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. The other thing I'll call out is we had an additional payroll cycle for both The US and Canada. That's not normal for us in a quarter. Obviously, The US is one of our largest payrolls. Right? So both of those things are putting pressure on free cash flow. I do wanna highlight free cash flow guidance for the year. If you normalize for the one-time payment, that we're making in Q4 tied to the cost optimization program. Remains unchanged.

Mhmm. Yep. And and then as a quick follow-up, you know, I can appreciate you're not giving a guidance beyond this fiscal year, but I know in your slide deck, you highlight again kind of the TAM expectations growing at a 12% CAGR, I think $38 billion kind of the longer-term total addressable market opportunity. I'm curious when you're asked about kind of the longer-term growth narrative, is the 12% a good underpinning growth rate to think about as we look out beyond this year? Or how are you thinking about the competitive landscape? The ability to take share in the context of that TAM growth expectation? Thank you.

Yes. No, thanks for the question again. We're not we're not gonna talk about next year right now. Right? We will obviously alongside, you know, the new CFO conversations, we will talk about what we're thinking for next fiscal year at a later time.

Hey, Aaron. And just this is Sanjay. You know, again, just to just to reiterate, the the business is in a good place. The you know, we had our best LAN software quarter ever. We had a second-best LAN SaaS quarter ever. We you know, our rule of 40 continues to be consistent. You know, across the board, the the platform the new platform releases both really well based on everything we've seen. So you know, we we will obviously, the right time, share more of that. So you know? But we we are you know, we we have no I think we will definitely outpace market. Yeah.

Yeah. Thank you, Sanjay.

Thanks.

Your next question comes from the line of Jason Ader with William Blair. Please go ahead.

Yeah. Thank you. Just first on the currency situation. Was this in line with your expectations? I know you gave guidance You had a nice beat on the revenue and the ARR. Did did it was there an extra benefit relative to your expectations from currency?

Sorry, Jason. I think I'm a little confused by your question. Which metric are you referring to?

Well, UK UK guidance on a reported basis. Right? And I just wanna know You're talking about for rep for revenue? NARR. Both.

Yeah. So we give currency in line with your expectations?

Yeah. So, on a reported basis, for revenue, currency was in line with our expectation. From an ARR perspective, we actually give only give annual guidance on ARR, and we do that on a constant currency basis.

Okay. I gotcha. Alright. And then the net new ARR, I think constant currency was for total net new AR was $39 million. I believe on the last earnings call, you guys talked about mid-forties. So just want to understand, was that was that below what your expectations were? And if so, why?

Yeah. So let me let me unpack that a little bit. Right? So and as we mentioned on the call, we had a really strong new customer quarter. It was actually our top term software new customer quarter and our second-highest customer acquisition quarter for SaaS. For SaaS in particular, I will tell you, 70% of our net new ARR was driven by SaaS. As a reminder, we land those customers at lower ASPs on average typically two to three times what we would land a a software customer with. And so what you're seeing in the ARR is just a reflection of that math. We're still very happy about that because what that does is give us the opportunity to go out, cross-sell, and gain further value with those customers. The other comment I'll make is going back to the software land piece. We have a tendency to land those customers at a longer duration. So that does have some modest dilution on ARR.

Okay. I I guess what I'm what I'm getting at is You know? What what I'm getting at, guys, is just what was the delta versus the $45 million that you guys had talked about? You ended up with $39 million. Something must have not played out the way you expected.

Yeah. So so it this is Andre. Jason, it's it's really just we sold a lot of SaaS deals, land deals this quarter. And and, you know, when you that's why you have to look at it on an annual basis. Because there will be variation quarter to quarter. We sell a lot of software, and it was also a big software. And quarter for us. So when you when you take the the you know, you take that together, it's it's you know, that kinda explains the you know, the delta, if you would. But if by by by every stretch of the imagination, it was a very strong quarter.

And and, Jason, let me let me just add a little bit more with the number. Too, which I think might help. Last quarter for perspective, 61% of our net new ARR was SaaS, This quarter, that's 70%. Again, when you're talking landing these customers at a, you know, two to three times smaller ASP than software, that's that does have a significant impact on ARR.

Gotcha. Okay. So so the explanation I can summarize, is just you're you're seeing a a bigger shift to SaaS than maybe you expected at the beginning, you know, when when you gave the guidance, and that had an impact on the number. Yes. Correct. And and and larger and larger software deals as well. Planned software deals that with longer durations. Yeah.

K. Thank you.

Thank you.

Your next question comes from the line of James Fish with Piper Sandler.

Hey, guys. Appreciate the the questions here. First, how much does Unity impact this shift from sort of term to to SaaS, if at all? And and second, can you just help us understand if SaaS is is so strong? And I get at the base is getting bigger and and more anniversary in Clumio, but why the 4% sequential drop in cloud net retention rate this quarter?

Okay. Jim, it's Andre. So Unity so we announced it in November. So it's what? You know, shy of three months ago. And what what Unity really does if I could if I could just reiterate, is it brings together workloads, data wherever they live under one control plane. So we're giving customers the ability to manage anything in, you know, what we call in the AI era under one control plane. And and and that is something that is we, you know, we see as being the future. Now what what we do is we also, as you know, cater to customers with large on-premise software and growing SaaS capabilities. And and that is their decision on how they to implement and the journey they take. So they work hand they work in tandem. So as far at this point, you know, we're not committing to change the model unilaterally in any way next fiscal year. It's a natural thing. We'll meet customer customers where they are. And what we've really done is take away the any kind of complexity a customer may face in the journey to the hybrid and multi-cloud. And really make it seamless.

And, Jim, I can take the second part of your question. So as it relates to our staff NRR, and I talked a little bit about this in my prepared remarks, but let me double click into it. Right, so a couple things went into our SaaS NRR this quarter. So the first thing and and you kind of, you know, you briefed this on on your question, right, is that we're dealing with a much larger customer base. So our SaaS customer base is now exceeding 9,000 total customers. So from an absolute dollar perspective, right, adding those same numbers of dollars, you're not getting the same level of uplift that you have you know, historically. The second thing, and, again, you'll hear this. Right? It's a it's a theme this quarter. We had such a strong new SaaS customer quarter Obviously, though those dollars don't show up in our NRR number yet. And I'll remind you. Right? We have one Salesforce that's doing both. Right? So that's number two. The last thing I will call out is there was a modest mix shift in some of our product capabilities among certain early adopter customers. Right? We have the benefit of having customers adopt our different innovation early But with that, we also deal with changes that need to happen over time. That's the beauty of what we offer customers and what Sanjay was describing with the Unity platform that we'll be able to to take to a to a different level next year. But we you know, these customers are still our customers. We're not seeing uptick upturn. This is really just you know, our business going through natural maturity. There's no there's no turning back here. Okay. Any unusual. That's important.

Got it. If I could on that 9,000 SaaS as as my question here. You have over 9,000 SaaS customers, 14,000 total subscription customers plus. Where does SaaS penetration get to, and how much are stand-alone SaaS customers?

Yep. So we I think we've said before, but of those over 9,000, roughly 30% of them also have software tied to them. On growing base. Yeah. On a growing base.

And and one that I look at closely also is that nearly 50% of our enterprise SaaS customers use more than one offering. Okay? That's up eight, nine points from last year. So that that also shows you that as the hybrid journey becomes real for our customers, the the the advantage of our platform becomes apparent. Especially in the larger, complicated enterprise journeys. Hybrid cloud space. We'll go to the next question, Bella.

Thank you. Your next question comes from the line of Eric Heath with KeyBanc. Capital Markets. Please go ahead.

Hey, Sanjay, Danielle. Thanks for taking the question. I just want to follow-up on some of the prior questions. But on the on the SAS NRR, is there anything from a go to market perspective incentive wise to shift the Salesforce focus over to landing new logos as opposed to expansion? Is that some of the reason to potentially explain why the SaaS new logos is maybe a little bit stronger while the NRR was a little bit softer?

We do a camp comp plans on an annual basis. Eric. And so there's been no mid-quarter or midyear change to that. It's just you know, between the fact that what we've what we're delivering to our customers in in SaaS as part of the platform in conjunction with our our software capabilities is what they need. And so we're seeing a healthy healthy there. And, also, the work we're doing with our ecosystem partners is also making it easy for customers to get access to and use it. So I think the product stands on its on its own. The SaaS capability stand on its own.

Got it. Thanks. And and just one more maybe clarification. Just help understand what drove some of the term duration elongation this quarter after being on the shorter side the last quarter or two? And then just anything on expectations for duration on term for next quarter. Thanks.

Yeah. So, you know, the way to think about it is what really affects term within a quarter is the number of large deals. That's the biggest contributor to to that. And this this quarter, the term was heavily influenced by some large new customer deals. So in Q3, we saw a modest pickup and instead of an uptick in the duration quarter on quarter, And and and we're winning large customers that are multiyear, which is which is a a darn good thing. What's also important that for me to underscore is that our median duration remains in a normal range. Okay? And and I guess we could have done a better job explaining term last quarter.

Your next question comes from the line yes. Your next question comes from the line of Howard Ma with Guggenheim. Please go ahead.

Thanks. I I wanna follow on the on this this constant currency net new ARR thread. You said the 39 in the quarter. So just given so Sanjay and Danielle, given your comments earlier, net adds were strong. I think we have more clarity on the SaaS. And our decline. But on the turn side, the term that new ARR was, I think, was about $17 million. So it it seems like maybe there was a shortfall in term net new ARR, and last quarter, average duration compressed. This quarter, average duration seemed like it upside a little bit. So so I'm I'm deducing that maybe it's average term expansion ARR was an in aggregate. And I understand that there were some large multiyear deals but maybe the expansion was a little weaker than expected. And and and really more importantly, how should we think about it? Like, if if if 17 is kind of a a baseline going forward, like, what what gives you confidence, especially in light of the of Unity coming out that that you you can sustain this level of of term expansion.

And I'm sorry, Howard. I wanna make sure I understand the question. You're suggesting that the net new ARR for was 17%? I'm just trying to understand where I'm getting where you're getting the 17% Yeah. Maybe I'd look. Maybe my number is incorrect, but what whatever that number was worth I I'm I'm seeing eighteen. Is it so I guess on a constant currency basis, is that correct? That term constant currency net new ARR was was 18 and that average expansion was maybe weaker than you expected and and what to think going forward.

Oh, I I understand what you're saying. So you're just looking at the term software piece. So it so this isn't about expansion. I'm gonna right. I I talked about this before, but maybe let me let me make sure I'm clear on that. What we saw this quarter is land customers. And, again, we had our strongest land term software customer quarter. We saw land customers come in at at much longer duration. Now them coming at a longer duration is part of the business. We've talked about this historically, too. Actually, I think if you look at Q4 of last year, we had kind of a similar type pattern here. But that's really what's driving that change. I mentioned already the SaaS you know, the growth in the new SaaS customer. I also wanna highlight our sub our subscription our subscription ARR, if you look at it, it's actually our second-best subscription ARR net new ad that we've had the history of the company. Or organic. Right? Gotta look organic. So, again, I I talked about the pieces with the new customers. But overall, I'm I'm we're really happy with with where we're at, and know, where we'll be for the year.

And we could follow-up on the one on on the public callback. If if you have. And and maybe just to a a quick follow-up for you, Sanjay. The restructuring efforts that or I should say the incremental restructuring efforts, it seems to be entirely focused in your r and d org and and perhaps operations. So r r and d and operations is that so, you know, number one, is that true? And what gives you confidence that these cutbacks won't impact your growth prospects?

Hey, Howard. I I'm I'm not sure where you're getting that from. That's no. We we time and time again, as part of our regular process, as we get close to the fiscal year and we look at what our priorities for the next year are and align our our p and l to to prioritize what we think is going to be part of the future. This this quarter you know, this was no this exercise was no was no exception. Now you know, without getting into too much of the detail, some of it is recurring. Some of it is not recurring. We ran a volume retirement program that was well received. And you know, so so it wasn't on one group or another. It was something we offered up to the whole company. And and some of the some of the savings you saw on the EBIT line this quarter and and beyond and then others are gonna be put back into the business where we need it. You know, just to because I got it from in your in the press release, it says business technology is is the the unit. So can can you just expand on what does business business technology that function entail?

No. No. No, Howard. Sorry. So there's two restructuring plans that we have throughout the year. The first one, we talked about in the beginning of the year, and that was tied to some changes we were making in our business technology team. That's that's not our r and d team. That's our internal business technology team. IT. The second restructure plan, which is really you know, the one that we talked about in the press release this time, and I made the comments on related to some of the cash flow impacts That one is a company-wide initiative.

Yeah. And, Howard, you know, actually, to to to be both direct, what this does is strengthen where we wanna go, not weaken. So we're not cutting back on r and d or any such thing. This is really about strengthening where we we where we think the, you know, the opportunity lies. So just aligning the business. This is it's a good thing.

Okay. Thank you for clarifying.

No worries. Absolutely. Thanks, Howard.

Your next question comes from the line of Param Singh with Open Oppenheimer. Please go ahead.

Yeah. Hi. Thank you, and thanks for taking my questions. I had a couple. First, look, you know, this ARR question would be new debt, but I had a slightly different question on it. As I look the future and, again, I'm not asking for guidance. But as I look forward, typically, these lower ARR SaaS customers will scale. Right? And then based on historical trends, do you think it is you know, should we assume that there will be some reacceleration with these customers as they come back with the potential of higher NRR? Dipping from this lower baseline and potential increase in net new ARR, Or do you think that since there's a systemic shift towards more SaaS customers coming into the ecosystem, this will kind of be a new baseline for the next few years. Until you have a larger SaaS base. How should we think about it logically in the long term?

Hi, Param. So I'm gonna I I think I understand your question, so I'm gonna answer it. But if if I'm not answering what you're asking, please feel free to to clarify. Right? So, yes, so we land these customers at lower ASPs as I talked about. Historically and I I think we've said this. Historically, our we land at roughly $40,000. That's our a that's our ASP for customers. Right now, we see anywhere from 30 to 40% depending on the quarter, right, of our customer. That that cross-sell. I will tell you actually we're seeing even better traction in our enterprise customers Our enterprise customers 50 per we are approaching 50% of them having more than one SaaS product. That's up 700 basis points from a year ago. Without giving you specific guidance for next year, what I can tell you is we have a history of growing the lifetime value of these customers, and we aspire to continue to do that.

And I think I think, Param, that with the Unity platform, it will make it even easier for customers to absorb new capabilities seamlessly. That is part of the design of the technology. So, you know, we think that being able to cross-sell over time is definitely part of our strategy as we've shared before.

So let me segue into my second Yeah. Go ahead, Danielle.

No. I I I just wanted to add one more thing, which I thought would maybe be helpful. Our SaaS customers over a $100,000 are actually up over 45%.

Great. So so let me segue to my my second part of my question, which is on Unity. Obviously, it's very early days, but if you could share some feedback And and how should we think about you know, based on that feedback, the adoption of Unity driving higher basically, SaaS ARR over time. Is there any way to conceptualize that?

We have conceptualized things around that platform. We're very excited about it, Param, as you could imagine. You know, at Shift, you saw how much how much we shared. The the platform is Yeah. Just literally you know, we announced it in November. It was broadly most of it was broadly available. End of the year, we're in the early days of it. The pipeline looks great. The feedback from industry, I shared some on my prepared comments. Is is very positive. And, you know, it's early days to to to put out any any pattern matching on it. But everything in the product, especially around its AI capabilities, and our ability to bring together data security identity resilience, you know, and true recovery is second to none. My goal our goal when we built and designed this product was to make it super easy for customers to embrace logical extensions of their resilience capability. So translated into a go to market piece, cross-sell becomes friction-free.

Right. Okay. And and do you do you feel you need to update your sales team a little bit to pivot to some of these you know, expanding capabilities? Or do you feel They just deliver. The right part of it. Go ahead.

They just delivered an amazing quarter. These guys are doing a great job. We're executing well. Of course, enablement of our team is job one. They're only as good as help help help. Confident they are with the technology. So we continue to invest in our people. It's a big part of how we do things. And and I'll be honest with you. I'm very proud of our sales team.

Okay. I'll get back in line. Thank you so much for answering my questions today.

Thanks, Param.

Your next question comes from the line of Rudy Kessinger with D. A. Davidson.

Hey, guys. Thanks for taking my questions. So on the net new ARR, last quarter, you said you expected 60% of net new ARR to come from SaaS. And 60% of $45 million would be $27 million. And you did $27.1 million of SaaS net to ARR. And so You got In Q3. that lens, it would look like SaaS net new ARR is kind of in line with expectations. And then back to Howard's point, it would thus look like term license net new ARR would was was below expectations or the primary you know, reason for the $6 million delta versus the $45 million kinda baseline that was expected. So could you just again, follow-up on maybe the term net new ARR? Was was that below expectations? What was the impact of maybe longer duration on some deals than expected that resulted in some price compression, thus AR compression, I'm just not understanding how basing these numbers term was not below expectations.

No. I I I understand what you're asking, Rudy. And and you're spot on with the with the SaaS net new ARR. So I'm I'm glad you called that out specifically. So what we were assuming for term is that Duration would remain consistent with Q2. What we saw is because of these large multiyear quite frankly, like, just long durations new software customers, we did see some pressure on term ARR tied to that. You are correct.

And and and, Rudy, I just I I've shared this over, like, repeatedly. You know, we have to look at this on a on a on a broader term basis. Quarter to quarter because of the type of business we do, the kinds of customers we cater to, the complexity of the projects that they embark upon, the mix of software versus SaaS, there will be a little bit of variability in how this stuff gets land. The good news is we're adding a ton of new customers in in subscript in in SaaS which bodes well for the long term. And we're and we had a record absolute record quarter of of software land customers with longer durations. So the it's you know, yes, the numbers are off a little bit, but it's it we need to be expect a little bit of variability in this over time because this is an end annualized thing. Now if you look at overall ARR for the year, you know, we're we're talking 22% rough rough tough growth on a $167 million year on year increase. So it's actually very handsome. I just, you know, I just feel like, there will be a little bit of quarter to quarter variability because we sell hybrid solutions for customers, and they have the option of being able to deploy it in the manner in which they want. So you know, I I guess we could have done a better job explaining that last last quarter. It comes back to the term and that that stuff, but I'll I'll keep explaining it till we get it right.

Yeah. The the only the only other thing I would call out the only other thing I would call out, Rudy, to your point is and we we've talked about this other ARR. Right? Other ARR the last couple of quarters has been consistent. We actually saw it decline. The decline almost doubled quarter over quarter, and that's really tied to some of our conversions. So that was the other piece just to kinda bring it all together.

Okay. And then as a follow-up, I'm curious. There was some commentary about, you know, you sold maybe more SaaS deals than in I seem to maybe interpret that as meaning that prohibited you from also selling some term deals. So I'm guessing curious, like, in your pipe for the quarter, did you have a lot of customers where reps were working with them on boats? Potential SaaS and term deals? And more of the land tilted towards fast, than than term in the quarter. And then sorry for a two-parter here, but on your SaaS ARR, what percentage of your SaaS ARR comes from or is calculated from consumption, in the current quarter times four versus TCV over duration. And I'm curious if you were to you know, look at the quarter, your staff, and the ACV bookings you know, standpoint relative as opposed to ARR. You know, how much stronger might that number have been if you were calculating all of your SaaS ARR as PC over duration?

Yeah. That's a that's a that's a tough question. Maybe maybe give us a little time to the exact number on that, but let me take the first part of your question. But our sales team the reason the way we the reason we have our go to market team the way it is because our platform delivers two sets of capabilities. So you can't segment them and say, do this versus that or that versus that. It really depends on where the customer is. And how we meet them where they are. So if a customer wants to start with Air Gap Protect and Clean Room and then move backwards into pipe you know, our our our our on-premise capabilities. That's what we'll do. So the sales team is is is absolutely aligned to the customer. Buying model and their buying capabilities and their needs. So we we internally don't trade off one license type versus another. That's not ever what we do. It's what the customer needs and how we best align to it. Could you repeat the second part of your question?

I the the second part of my question, guess, like, if I just take your $364 million of SaaS ARR, how much of that is calculated from, like, Flumio products that are just consumption times four versus how much is just TCV over duration, the same way you calculate your term by since ARR? Because I'm trying to you know, you're talking about the ASPs being much lower and the the ARR not necessarily showing up yet from some strong bookings. And so I'm trying to understand you know, how much of your net new SaaS bookings come from products that are going to have ARR calculated on a consumption basis as opposed to TCV over duration.

Yeah. So I I'm not gonna give the exact breakout, Rudy. What I can tell you, though, is it's it's small. It's immaterial on on the whole ARR number. So you're not it's it's it's not overly meaningful. In the percentage.

Okay. That's helpful. Thank you.

Thanks, Rudy. Your next question comes from the line of Michael Romanelli with Mizuho Securities. Please go ahead.

Yeah. Hi. Thanks for, yeah, for taking the question. So, yeah, I guess I was just, you know, wondering if there are any regions and or verticals that perform better than your internal expectations this quarter? And maybe conversely, were any more challenged than you were anticipating?

What was the second part, sorry, Michael?

Yeah. If if any, you know, regions or or verticals were perhaps more challenged than you were anticipating.

Yeah. It was actually, as a quarter, it's very evenly distributed. And and almost by design. You know, we we've over over time, we've we've worked to derisk the business in both geography as well as in in particular verticals. This quarter was you know, our international business did very well as did our US business. Was very, very even. Our SaaS business did well. Our software business did well. So there was no there was no particular call out. I think overall, a well-delivered quarter from my from my point of view.

Got it. Okay. That's helpful. And then maybe just building on the prior question, I apologize if I missed it. But you guys have obviously noted that you expect SaaS to comprise about 60% of total net new ARR for the fiscal year. Just how should we be thinking about that mix shift for the 4Q?

Yeah. I would even this quarter, we talked about this. I think Rudy called this out, right? From a SaaS perspective, we're we're still about 60%. So I I I think that 60% baseline is is the right way to think about it.

Got it. Okay. Alright. That's helpful. Thanks.

Yep. Your next question comes from the line of Tom Blakey with Cantor. Please go ahead.

Hey, guys. Thanks for squeezing me in here. Just a couple quick ones. On this, duration topic, Danielle, what what is the I guess just bluntly, what is the expectation for duration in the guide for fiscal 4Q

Yeah. So so we're continuing to assume that duration remains Specifically, and Sanjay called this out in his earlier remarks, right, median duration will remain in normal range. So that's what assuming in our guide.

So I doubt so, basically, like, just quarter to quarter a downtick in duration, so to speak. And then go ahead.

No. No. Yeah. I I I would say, again, that the duration median will remain the same. And the guide is neither aggressive nor conservative. Right? We wanted to give you where we feel like we can meet. And, frankly, we're getting better at this as customers deploy more complex scenarios, we have to, you know, internally be spending a lot time really, really finessing how we how we look at this. You know? And and we'll be completely transparent about

Yeah. No. You have always, Sanjay. I I just said, you know, duration was an impact to ARR this quarter, so I was just trying to understand. I know because, you know, it's it's it's a tale of two cities. Right? Here we get the you know, we get larger duration. More land deals, and it affects the other side. So then we got a lot of new SaaS deals you know, and smaller duration. And so the you know, a little bit of a a variability is to be expected. We're getting better. I hope at being able to tell you what that is.

Yeah. And and this just goes hand in hand with the the complexity and the expanding kind of sales motion that you guys are going to market with in terms of adding cyber resilience the last year or so a year or two, Sanjay. So maybe if you could talk about you you know, this these increasing hybrid deals the sales cycles. Maybe talk about, you know, what on a like for like basis, you know, where are sales cycles going you know, this last fiscal quarter or maybe going forward in your mind? Are they expanding? Maybe if you could touch on discounting for everybody on the call. Is there an element of discounting just to address that topic with the extended durations? And that's it. For me. Thank you so much.

No worries. No worries. So that you know, so hybrid deals if you if you start on the software side, you look at large enterprise customers, and they have a they have a you know, they have technology that goes back to the legacy technology. The the process of getting, you know, getting that conversation going where it becomes a combination now in resilience terms. Of really looking at data security of all of all data types looking at identity resilience, and then and then attaching that to world-class recovery, that becomes a fairly sophisticated conversation and that takes time. And when we get into it, then you realize that some of the workloads, they wanna start the cloud. They want to keep on-premise. They want they have a timeline under which to move it to the cloud. So then you start working through that. And we've gotten good at it because we've been doing this now, you know, the cyber resilience conversation. Security conversation for a couple of years. We think the new platform and the bringing of the capabilities under one pane of glass will just allow customers especially with our discovery capabilities, to quickly get on get up and understand what they have and what is protected, what isn't, at what level, what policy. So, you know, I think the new platform in time will will help shrink our ability and and the customer's decision points, I think, to to do things. Now the Salesforce is taking this to market comprehensively. Okay? It's not if we try not to go and and talk about workloads because that's not a resilient solution. A resilient resilience in in my simple way of thinking about it is is only as good as as the entirety of the workload that you put the workload you protect. And so that's that's kinda how we look at it. These deals, when you start, can you know, it's it's it's a very sophisticated sales process, and it's a very and and you have to but customers are open to it. You know? Cyber threats going down. AI in in a in a good way generates more data, and that data needs to be protected. And and we're good at that. Okay? So that's kinda how we think about

Go ahead. You saw that, Sanjay. You you know, you you sorry. As a follow-up to that, Sorry. I thought I was done there. But you saw that in your net new term record additions. Again, I just wanted to just triple click on is this maybe you know, in addition to all these records, and and solid results, is there an element of pipeline building related to this, you know, possibly Yeah. A sales elongation going on? Yep.

No. So so so I was gonna I was gonna you know, I think that firstly, you said discounting earlier in your earlier part of your question. There is no you know, we keep a very tight control on that. Yeah. You know, our chief commercial officer was our chief financial officer. So there's a very high degree of discipline that goes into discounting. Inside of the company. So that, I don't I I don't worry about day in and day out. That's not that's not my concern at all. The sales cycle, we believe, and it's early days. So we could talk about it over over the quarters to come. We believe that our Cloud Unity platform will reduce the time it takes for customers to understand resilience the way we've designed it and get up and running with us faster. And then we also released a framework for them to sort of look at to to operationalize it. We call that res ops. We released that. We we announced that in in tandem with the platform. And the the the collective capabilities in in there we think, will allow our team, our partners, and our customers our prospects in this case to to truly understand how fast they can get up and running with true resilience. So I'm very hopeful about where the platform is.

Thank you very much, Sanjay.

Thank you.

Your next question comes from the line of Khasari with Baird. Please go ahead.

Hey. Thanks for taking my question. So, Danielle, you you noted, of course, strong new SaaS customer this quarter, but that these dollars of course, haven't flowed into NRR yet. Can can you just clarify And I I believe Sanjay was was getting to that in terms of that lag effect. Is it is it purely a function of like, how you recognize your SaaS ARR sort of ramping off actual usage consumption versus potentially some of the peers who use and and kind of use that linearity around duration and TCV. So that's part one, and I had a follow-up on on Unity. Thanks.

Yeah. So so I just wanna make sure I understand because I I I think you're asking two different things. So you mentioned SAS NRR. Right? And I had made the comment, you know, one of the things we saw is we had a really strong SaaS new customer quarter. And so, obviously, the way that we calculate NRR is we take that same customer cohort from last year, and look at where they are this year. So any new customers would not be considered in that calculation. Does that help answer your question? I I think that's what you're you're getting at, but if I'm if I'm missing it, let me know.

No. No. That that was it. Yeah. Thanks. Yeah. Okay.

Perfect. So it's all future value?

Future value lifetime value of the customer. Got it. And and, Sanjay, so my my then is of course, you have the the SASE recognition due to this kind of ramps. And I I was just curious would in that case, kind of a SaaS ACV booking offer, like, a much cleaner, better lens into your to my I I think you were getting to that. And with Unity gaining traction, should help improve your overall TCV and AR dynamics. Just curious. And, also, your net new AR come from SaaS. Just has there been any internal discussion around looking at some of those metrics kind of ACV or backlog RPO. Yeah.

Hey, sorry. This is Danielle again. So I I just wanna make sure it's clear. Right? So we do have some consumption and some utility, It's a it's a small portion of our of our ARR. Most of our ARR is tied to what I'll say, is true subscription SaaS customers, and that you know, they buy a a you know, fixed amount for one year, and then that amount is annualized. So I I I I don't I don't know if there's I hope that answers your question.

That's clear. Thanks a lot. Yep.

Your last question comes from the line of Junaid Siddiqui with Truist. Please go ahead.

Great. Good morning, and thank you for taking my question. Just wanted to ask about Satori. Sanjay. I know it's in early days, but could you just discuss how Satori is influencing customer adoption and deal sizes? Yeah, you know, in these ransomware driven evaluations. And, you know, what specific capabilities within Satori you know, are proving most differentiating in these competitive wins? And how do you think about its contribution to growth over the next let's say, twelve, eighteen months?

Okay. Sounds good. So where we are with Satori, is we're in the throes of integrating the product into our platform. And when we when we acquired Satori, we were I think, very clear that this would not be a stand-alone capability, but the value, the true value of Satori was giving our customers the ability to inspect and look at their data structured, unstructured, you know, and and really have a policy-related compliance capability. So that that that was the premise. That work we are in the throes of incorporating into the platform. Our belief is that customers need that capability as part of the platform unlike some others in the business, because standalone, it's another integration point. And with us, it's it's a feature you just turn on and then you are protected, and you're looking at, you know, the compliance requirements and policies across the board. So it's it's an, you know, it's an implicit part of the platform. Okay? We believe that the value comes for customers being better protected out of the box without having to do more infield integrations with third-party products. And and we think that's gonna raise the value. And it is already raising the value in conversations that we're having. So it's early days, but kinda where we expected it. To be.

Great. Thank you.

Thank you.

Alright. There are no questions at this time. Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining, and you may now disconnect. Everyone, have a great day.