I speak with Commvault CEO Sanjay Mirchandani about Q3 fiscal 2026 earnings and guidance.
Questions asked in this interview
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0:04Tell me about the net new annualized recurring revenue. What's happening in the marketplace?
2:19Does that mean in some way fewer additions, less additional business from existing customers?
2:54How is this greater move toward data sovereignty, particularly in Europe and from those customers, affecting the business if at all?
3:58For the guided quarter, is it a headwind or a tailwind?
4:14Based on some of where that net new annualized recurring revenue is coming from, do you find yourself flatfooted in any way based on, you know, beyond the short term what you had planned?
6:24How are you going to pace out how you expect customers to respond to the need that you say underlying is still there and still in line with your strategy?
7:16What's the customer response been to that so far and to the road map you've laid out?
9:11... see, either in the benefit that you expect to get from external models that can influence how the customer experiences this product or the broader trends that you expect to flow through the enterprise that'll affect demand for the product?
Welcome to Fort Knox Earnings. I'm John Ford here with Sanjay Mirchandani, the CEO of Commvault. On the day when you've reported earnings, stocks not responding well, so have to start there. Tell me about the net new annualized recurring revenue. What's happening in the marketplace? I think, you know, clearly the revenue and the EPS for the quarter itself was strong, but some folks had different expectations about the guide.
Yeah, good to see you, John. Thanks for having me. Yeah, a little bit of a tough day at the office so far, but hopefully we'll get better. You know, it's I guess the way I've been talking to investors all day trying to really put a pin on what it is that we could have gotten better. And what we're sort of narrowing down to is that at the start of the quarter when we sort of put out a guidance and based on our internal forecasts as to what the net new ARR would be, we saw a different mix between software and SaaS. And then over the course of the quarter as our larger customers, you know, because they're hybrid and they sometimes think they're going to start with software but end up with SaaS and go the other way. What ended up happening was we saw more SaaS customers, what we call new land SaaS customers, and actually had the largest new software land customer quarter. So what ended up happening was a composite, the SaaS business, the new SaaS business that we bring in tends to be at a lower ASP and the customers grow over time. So the lifetime value of the customer is what's really important. And with software, when customers commit to multi-year migrations, the term tends to be a little longer, that dilutes net new ARR as well. So the compound effect of those two things probably is what the investors are telling us we missed the mark on. But the positive, if I may, the positive in all of this is we added many new customers. So it bodes well for the future. I take new customers every single day and hopefully the learning here is we got to get our forecasting and the way we tell that story a little better.
It's always a mix. You know, the way we look at the business is land and expand. So with the customers we land new customers. Software customers tend to do a larger purchase up front because that's the plan they have. SaaS customers tend to buy smaller upfront and expand over time. And it's usually, it's not in line. Some quarters land is higher. In other quarters expand is higher. So you know, this quarter was a great land quarter.
It's becoming more and more prominent and important in our conversations with customers. Now from a data sovereignty point of view, our technology has provided customers with required data sovereignty by ourselves and with our partners for a long time. Now it's becoming a lot more cloud-oriented and they want to be able to do whether it's regional clouds or private clouds that have sovereignty built into it and the journey will continue. We're starting on this. So we're in active conversations with customers but also more importantly with partners like AWS, for example, they announced their sovereign cloud capabilities in Europe and we're a launch partner with them because at the end of the day it's an ecosystem. Customers are not going to use us in isolation of the clouds or the other partners out there. So it's a journey. We're on top of it. We have conversations on this every day. Our technology supports it and we'll keep supporting it.
I don't think it's either. I think it's a need that customers are talking to us about and we're working with them on it. You know, I think it's just an emerging need.
Is there any shift in underlying demand for what you're offering because the stock seems to be responding as if the overall narrative has shifted. And to a lot of people, investors included perhaps, they think that price is truth when sometimes price is a detail but not the entire story. So from your perspective now, has the narrative changed based on the results in this quarter? Based on some of where that net new annualized recurring revenue is coming from, do you find yourself flatfooted in any way based on, you know, beyond the short term what you had planned?
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