COMMVAULT SYSTEMS INC

Previous wording

We sell to end-user customers both directly through our sales force and indirectly through our global network of value-added reseller partners, systems integrators, corporate resellers, original equipment manufacturers, and marketplaces. Revenues generated through indirect distribution channels accounted for approximately 90% of our total revenues in both the three months ended June 30, 2026 and 2025. Revenue generated through direct distribution channels accounted for approximately 10% of our total revenues in both the three months ended June 30, 2026 and 2025. Deals initiated by our direct sales force are sometimes transacted through indirect channels based on end-user customer requirements, which are not always in our control and can cause this overall percentage split to vary from period to period. As such, there may be fluctuations in the dollars and percentage of revenues generated through our distribution channels from time to time. We believe that the growth of our revenues, derived from both our indirect channel partners and direct sales force, are key attributes to our long-term growth strategy. We intend to continue to invest in both our channel relationships and direct sales force in the future, but we continue to expect more revenues to be generated through indirect distribution channels over the long term. The failure of our indirect distribution channels or our direct sales force to effectively sell our products and services could have a material adverse effect on our revenues and results of operations.

Current wording

We sell to end-user customers both directly through our sales force and indirectly through our global network of value-added reseller partners, systems integrators, corporate resellers, original equipment manufacturers, and marketplaces. Revenues generated through indirect distribution channels accounted for approximately 90% of our total revenues in both the six months ended September 30, 2026 and 2025. Revenue generated through direct distribution channels accounted for approximately 10% of our total revenues in both the six months ended September 30, 2026 and 2025. Deals initiated by our direct sales force are sometimes transacted through indirect channels based on end-user customer requirements, which are not always in our control and can cause this overall percentage split to vary from period to period. As such, there may be fluctuations in the dollars and percentage of revenues generated through our distribution channels from time to time. We believe that the growth of our revenues, derived from both our indirect channel partners and direct sales force, are key attributes to our long-term growth strategy. We intend to continue to invest in both our channel relationships and direct sales force in the future, but we continue to expect more revenues to be generated through indirect distribution channels over the long term. The failure of our indirect distribution channels or our direct sales force to effectively sell our products and services could have a material adverse effect on our revenues and results of operations.

Previous wording

We have non-exclusive distribution agreements with certain partners who enable a more efficient and effective distribution channel for our solutions by managing our resellers and leveraging their own industry experience. For the three months ended June 30, 2026 and 2025, Partner A accounted for approximately 32% and 33% of our total revenues, respectively. Separately, Partner B accounted for approximately 11% of our total revenues for both the three months ended June 30, 2026 and 2025. If any of these partners were to discontinue or materially reduce their sales of our solutions, terminate their agreements with us, or experience operational or financial difficulties, and if we were unable to effectively replace them or assume management of the affected distribution activities, our business, revenues, and results of operations could be materially adversely affected.

Current wording

We have non-exclusive distribution agreements with certain partners who enable a more efficient and effective distribution channel for our solutions by managing our resellers and leveraging their own industry experience. For the six months ended September 30, 2026 and 2025, Partner A accounted for approximately 31% and 32% of our total revenues, respectively. Separately, Partner B accounted for approximately 12% of our total revenues for both the six months ended September 30, 2026 and 2025. If any of these partners were to discontinue or materially reduce their sales of our solutions, terminate their agreements with us, or experience operational or financial difficulties, and if we were unable to effectively replace them or assume management of the affected distribution activities, our business, revenues, and results of operations could be materially adversely affected.

Previous wording

We also sell our solutions through cloud-based marketplace offerings operated by third-party platform providers. Revenue from marketplace transactions are typically recorded on a gross basis, and amounts paid to the marketplace providers are capitalized as contract costs and amortized over the term of the related arrangement. Amortization of capitalized marketplace costs was $0.5 million and $0.4 million for the three months ended June 30, 2026 and 2025, respectively. Transactions through third‑party cloud marketplace providers represented approximately 10% of our total revenues for the three months ended June 30, 2026 and less than 10% of our total revenues for the three months ended June 30, 2025. These transactions include sales to both new and existing customers and may include new purchases, renewals, expansions for existing customers, and subscriptions for both on‑premise and SaaS offerings.

Current wording

We also sell our solutions through cloud-based marketplace offerings operated by third-party platform providers. Revenue from marketplace transactions is typically recorded on a gross basis, and amounts paid to the marketplace providers are capitalized as contract costs and amortized over the term of the related arrangement. Amortization of capitalized marketplace costs was $1.2 million for both the six months ended September 30, 2026 and 2025. Transactions through third‑party cloud marketplace providers represented approximately 12% of our total revenues for the six months ended September 30, 2026 and less than 10% of our total revenues for the six months ended September 30, 2025. These transactions include sales to both new and existing customers and may include new purchases, renewals, expansions for existing customers, and subscriptions for both on‑premise and SaaS offerings.

Previous wording

Subscription ARR represents the annualized value of all active contracts as of the end of a reporting period attributable to term‑based licenses, maintenance and support services associated with term license arrangements, SaaS subscriptions, and consumption‑based arrangements, calculated by dividing the total active contract value by the number of days in the contract term and multiplying the result by 365. For consumption-based arrangements on a pay as you go model without a fixed commitment, the applicable ARR is calculated by annualizing the revenue contractually expected to be received in a given month based on actual monthly usage from a prior month. We believe Subscription ARR provides useful insight into the growth of our subscription-based offerings and reflects both new customer acquisition and expansion within our existing customer base. As our most strategically significant and rapidly expanding revenue streams, our subscription arrangements are central to our long-term growth strategy and operational focus.

Current wording

Subscription ARR represents the annualized value of all active contracts as of the end of a reporting period attributable to term‑based licenses, maintenance and support services associated with term license arrangements, enterprise support, SaaS subscriptions, and consumption‑based arrangements, calculated by dividing the total active contract value by the number of days in the contract term and multiplying the result by 365. For consumption-based arrangements on a pay as you go model without a fixed commitment, the applicable ARR is calculated by annualizing the revenue contractually expected to be received in a given month based on actual monthly usage from a prior month. We believe Subscription ARR provides useful insight into the growth of our subscription-based offerings and reflects both new customer acquisition and expansion within our existing customer base. As our most strategically significant and rapidly expanding revenue streams, our subscription arrangements are central to our long-term growth strategy and operational focus. Beginning in fiscal 2027, Subscription ARR has been reclassified to include enterprise support, further aligning Subscription ARR with Subscription revenue. Enterprise support consists of recurring customer success services that provide our customers with enhanced support, strategic guidance and dedicated technical expertise. Prior to fiscal 2027, enterprise support was included only in Total ARR.

Previous wording

Subscription NRR includes all contracts attributable to term-based licenses, maintenance and support services associated with term license arrangements, SaaS subscriptions, and consumption-based arrangements. Subscription NRR is calculated as the percentage of Subscription ARR retained from existing customers at the start of an annual period after accounting for expansion revenue, churn, and downgrades, measured on an annualized basis using the trailing four quarter average. Acquired Subscription ARR is excluded until the acquisition is fully integrated, which we generally expect to occur twelve months from the close date. We believe our Subscription NRR offers valuable insight into the year-over-year expansion of our existing customer base, reflecting both increased utilization of current products and services as well as the adoption of additional offerings.

Current wording

Subscription NRR includes all contracts attributable to term-based licenses, maintenance and support services associated with term license arrangements, enterprise support, SaaS subscriptions, and consumption-based arrangements. Subscription NRR is calculated as the percentage of Subscription ARR retained from existing customers at the start of an annual period after accounting for expansion revenue, churn, and downgrades, measured on an annualized basis using the trailing four quarter average. Acquired Subscription ARR is excluded until the acquisition is fully integrated, which we generally expect to occur twelve months from the close date. We believe our Subscription NRR offers valuable insight into the year-over-year expansion of our existing customer base, reflecting both increased utilization of current products and services as well as the adoption of additional offerings.

Previous wording

These metrics are non-GAAP measures and do not have standardized definitions under GAAP. As such, they may not be comparable to similarly titled measures used by other companies and should be considered as a supplement to, and not as a substitute for, financial information prepared in accordance with GAAP. Management uses these metrics to assess the health of our recurring revenue base and to inform strategic decision-making. These metrics should be viewed independently of GAAP revenue, deferred revenue, and unbilled revenue and are not intended to be combined with or to replace those items.

Current wording

These metrics are operating metrics and do not have standardized definitions or direct comparisons under U.S. generally accepted accounting principles ("GAAP"). As such, they may not be comparable to similarly titled measures used by other companies and should be considered as a supplement to, and not as a substitute for, financial information prepared in accordance with GAAP. Management uses these metrics to assess the health of our recurring revenue base and to inform strategic decision-making. These metrics should be viewed independently of GAAP revenue, deferred revenue, and unbilled revenue and are not intended to be combined with or to replace those items. Subscription ARR and SaaS ARR are not forecasts of future revenues.

Previous wording

Sales outside the United States were 45% and 44% of our total revenues for the three months ended June 30, 2026 and 2025, respectively. The income statements of our non-U.S. operations are translated into U.S. dollars at the average exchange rates for each applicable month in a period. To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency-denominated transactions generally results in increased revenues, operating expenses, and income from operations for our non-U.S. operations. Similarly, our revenues, operating expenses, and income from operations will generally decrease for our non-U.S. operations if the U.S. dollar strengthens against foreign currencies.

Current wording

Sales outside the United States were 44% and 45% of our total revenues for the six months ended September 30, 2026 and 2025, respectively. The income statements of our non-U.S. operations are translated into U.S. dollars at the average exchange rates for each applicable month in a period. To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency-denominated transactions generally results in increased revenues, operating expenses, and income from operations for our non-U.S. operations. Similarly, our revenues, operating expenses, and income from operations will generally decrease for our non-U.S. operations if the U.S. dollar strengthens against foreign currencies.

Previous wording

Using the average foreign currency exchange rates from the three months ended June 30, 2025, our total revenues would have been lower by $2.4 million, our cost of revenues would have been lower by $0.1 million, and our operating expenses would have been higher by $0.9 million from non-U.S. operations for the three months ended June 30, 2026.

Current wording

Using the average foreign currency exchange rates from the three months ended September 30, 2025, our total revenues would have been higher by $0.9 million, our cost of revenues would have been higher by $0.1 million, and our operating expenses would have been higher by $1.4 million from non-U.S. operations for the three months ended September 30, 2026. Using the average foreign currency exchange rates from the six months ended September 30, 2025, our total revenues would have been lower by $1.5 million, our cost of revenues would have been higher by less than $0.1 million, and our operating expenses would have been higher by $2.2 million from non-U.S. operations for the six months ended September 30, 2026.

Previous wording

In addition, we are exposed to risks of foreign currency fluctuation primarily from cash balances, accounts receivables, and intercompany accounts denominated in foreign currencies and are subject to the resulting transaction gains and losses, which are recorded as a component of general and administrative expenses. We recognized net foreign currency transaction gains of approximately $0.1 million and losses of approximately $1.2 million for the three months ended June 30, 2026 and 2025, respectively.

Current wording

In addition, we are exposed to risks of foreign currency fluctuation primarily from cash balances, accounts receivables, and intercompany accounts denominated in foreign currencies and are subject to the resulting transaction gains and losses, which are recorded as a component of general and administrative expenses. We recognized net foreign currency transaction losses of approximately $0.2 million and $0.9 million for the three months ended September 30, 2026 and 2025, respectively. We recognized net foreign currency transaction losses of approximately $0.1 million and $2.1 million for the six months ended September 30, 2026 and 2025, respectively.

Previous wording

In presenting our consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"), we are required to make estimates and judgments that affect the amounts reported therein. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate. Actual results may differ significantly from these estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows may be affected.

Current wording

In presenting our consolidated financial statements in conformity with GAAP, we are required to make estimates and judgments that affect the amounts reported therein. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate. Actual results may differ significantly from these estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows may be affected.

Previous wording

There have been no significant changes in our critical accounting policies during the three months ended June 30, 2026 as compared to the critical accounting policies and estimates disclosed in "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2026.

Current wording

There have been no significant changes in our critical accounting policies during the six months ended September 30, 2026 as compared to the critical accounting policies and estimates disclosed in "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2026.

Previous wording

SaaS revenue increased 39% year over year, driven by growth from both new and existing customers. Term-based support revenue increased 18% year over year, reflecting the maintenance and related support components of active term-based license contracts.

Current wording

SaaS revenue increased 33% year over year, driven by the continued expansion of our SaaS business and the recognition of revenue from SaaS contracts entered into in current and prior periods. Term-based support revenue increased 15% year over year, reflecting the maintenance and related support components of active term-based license contracts.

Previous wording

Term-based license revenue was relatively consistent with the prior-year period, increasing 1% year over year. Growth was led by a 13% increase in transactions less than $0.1 million, partially offset by a 2% decline in transactions greater than $0.1 million. Term-based license revenue may fluctuate from period to period based on renewal timing, contract duration, and seasonal purchasing patterns across our global markets. These increases were partially offset by a $6.0 million decrease in perpetual support revenue, consistent with our continued transition towards subscription-based offerings.

Current wording

Term-based license revenue increased 13% year over year, led by a 17% increase in revenue from transactions greater than $0.1 million, while revenue from transactions less than $0.1 million remained generally consistent with the prior-year period. Term-based license revenue may fluctuate from period to period based on renewal timing, contract duration, and seasonal purchasing patterns across our global markets.

Previous wording

Cost of SaaS revenue increased $3.7 million for the three months ended June 30, 2026, primarily due to higher infrastructure costs to support growth in our SaaS offerings. SaaS gross margin increased to 70.5% from 64.1% in the prior-year period, reflecting infrastructure and product optimization initiatives and improved economics under strategic agreements with our hyperscale cloud partners. As our SaaS business continues to represent a larger percentage of total revenue, changes in hosting cost, utilization, and operating efficiencies may have a meaningful impact on consolidated gross margin.

Current wording

Cost of SaaS revenue increased $2.6 million for the three months ended September 30, 2026, primarily due to higher infrastructure costs to support growth in our SaaS offerings. SaaS gross margin increased to 70.0% from 63.5% in the prior-year period, reflecting infrastructure and product optimization initiatives, increased scale, and improved economics under strategic agreements with our hyperscale cloud partners. As our SaaS business continues to represent a larger percentage of total revenue, changes in hosting cost, utilization, and operating efficiencies may have a meaningful impact on consolidated gross margin.

Previous wording

Interest income was $7.7 million in the three months ended June 30, 2026 compared to $2.0 million in the three months ended June 30, 2025. The increase was primarily driven by investments in money market funds beginning in the third quarter of fiscal 2026.

Current wording

Interest income was $8.4 million in the three months ended September 30, 2026 compared to $3.1 million in the three months ended September 30, 2025. The increase was primarily driven by investments in money market funds beginning in the third quarter of fiscal 2026.

Previous wording

Our effective tax rate ("ETR") was 34.4% and 12.6% for the three months ended June 30, 2026 and 2025, respectively. The increase in ETR as of June 30, 2026 compared to the prior year was primarily due to changes in the mix of our earnings and tax expenses between the U.S. and foreign countries, as well as changes in the tax impact of stock-based compensation.

Current wording

Our effective tax rate ("ETR") was 24.9% and 2.5% for the three months ended September 30, 2026 and 2025, respectively. The increase in ETR compared to the prior year was primarily due to changes in the mix of our earnings and tax expenses between the U.S. and foreign countries, as well as changes in the tax impact of stock-based compensation.

Previous wording

Total revenues increased $32.2 million, or 11%, for the three months ended June 30, 2026, primarily driven by continued growth in subscription revenue, including term-based license, term-based support and SaaS offerings. Total subscription revenue increased $37.7 million, or 16%, and represented 85% of total revenue compared to 81% in the prior-year period, reflecting continued customer adoption of our subscription-based offerings.

Current wording

Total revenues increased $68.4 million, or 12%, for the six months ended September 30, 2026, primarily driven by continued growth in subscription revenue, including term-based license, term-based support, and SaaS offerings. Total subscription revenue increased $83.9 million, or 19%, and represented 85% of total revenue compared to 81% in the prior-year period, reflecting continued customer adoption of our subscription-based offerings and the ongoing transition away from perpetual license and support products.

Previous wording

We track total revenues on a geographic basis. Our Americas region includes the United States, Canada, and Latin America. Our International region primarily includes Europe, the Middle East, Africa, Australia, India, and Southeast Asia. Americas and International represented 59% and 41% of our total revenues, respectively, for the three months ended June 30, 2026. Total revenues increased 9% and 15% year over year in the Americas and International regions, respectively.

Current wording

We track total revenues on a geographic basis. Our Americas region includes the United States, Canada, and Latin America. Our International region primarily includes Europe, the Middle East, Africa, Australia, India, and Southeast Asia. Americas and International represented 61% and 39% of our total revenues, respectively, for the six months ended September 30, 2026. Total revenues increased 12% year over year in both the Americas and International regions.

Previous wording

Total cost of revenues increased $6.8 million for the three months ended June 30, 2026, primarily due to increased infrastructure costs associated with the continued expansion of our SaaS offerings and, to a lesser extent, higher costs related to royalties tied to certain term-based license revenue. As a result, total gross margin was $256.5 million, or 81.7%, for the three months ended June 30, 2026.

Current wording

Total cost of revenues increased $10.7 million for the six months ended September 30, 2026, primarily due to increased infrastructure costs associated with the continued expansion of our SaaS offerings and, to a lesser extent, higher royalty costs associated with certain term-based license revenue. Gross margin increased to 81.4% from 81.0% in the prior-year period.

Previous wording

–Sales and marketing expenses increased $17.3 million, or 14%, primarily driven by a $17.5 million increase in employee compensation and related expenses, including higher sales commissions, bonuses, and payroll taxes associated with increased headcount and higher revenue levels. Sales and marketing expenses also increased $1.6 million due to higher stock-based compensation. These increases were partially offset by a $2.0 million decrease related to the timing of certain in‑person events and travel.

Current wording

–Sales and marketing expenses increased $30.6 million, or 13%, primarily driven by a $26.6 million increase in employee compensation and related expenses, including higher sales commissions, bonuses, and payroll taxes associated with increased headcount and higher revenue levels. Sales and marketing expenses also increased due to a $3.5 million increase in stock-based compensation. These increases were partially offset by a $0.8 million decrease in travel and entertainment expenses.

Previous wording

–General and administrative expenses increased $5.5 million, or 13%, reflecting a $5.2 million increase in third-party consultants, primarily related to a strategic pricing and packaging initiative. In addition, employee compensation and related expenses increased $2.0 million, inclusive of $1.7 million in higher stock-based compensation. These increases were partially offset by a favorable year-over-year change in foreign currency impacts, as the prior-year period included a $1.2 million foreign currency transaction loss compared to a $0.1 million gain in the current period.

Current wording

–General and administrative expenses increased $5.1 million, or 6%, primarily driven by a $2.7 million increase in third-party consulting expenses related to a strategic pricing and packaging initiative, $2.6 million increase in employee compensation and related expenses, and a $3.3 million increase in stock-based compensation. These increases were partially offset by a $2.2 million decrease in third-party professional services compared to the prior-year period.

Previous wording

–Restructuring expenses were $2.4 million for the three months ended June 30, 2026. These charges relate to our restructuring plan initiated in the third quarter of fiscal 2026 and consist primarily of severance and associated costs from headcount reductions. These charges also include $0.6 million of stock-based compensation resulting from modifications to existing awards granted to certain employees. As of June 30, 2026, the majority of costs associated with this plan have been incurred and the remaining activities are anticipated to be completed in fiscal 2027. Restructuring expenses were $0.2 million for the three months ended June 30, 2025 related to a completed plan.

Current wording

–Restructuring expenses were $2.7 million for the six months ended September 30, 2026, compared to $1.7 million for the prior-year period. These charges relate to our restructuring plan initiated in the third quarter of fiscal 2026 and consist of severance and associated costs from headcount reductions, including $0.7 million of stock-based compensation resulting from modifications to existing awards granted to certain employees. The majority of costs associated with this plan have been incurred, and the remaining activities are anticipated to be completed during fiscal 2027.

Previous wording

As of June 30, 2026, our cash and cash equivalents balance was $929.8 million, of which approximately $323.6 million was held outside of the United States by our foreign legal entities. These balances are dispersed across approximately 35 international locations. We believe that such dispersion meets the current and anticipated future liquidity needs of our foreign legal entities. In the event we need to repatriate funds from outside of the United States, such repatriation would likely be subject to restrictions by local laws and/or tax consequences, including foreign withholding taxes. Our cash and cash equivalents consisted of cash deposits and money market funds, which are highly liquid and are intended to support our operating, investing and financing needs.

Current wording

As of September 30, 2026, our cash and cash equivalents balance was $897.3 million, of which approximately $318.6 million was held outside of the United States by our foreign legal entities. These balances are dispersed across approximately 35 international locations. We believe that such dispersion meets the current and anticipated future liquidity needs of our foreign legal entities. In the event we need to repatriate funds from outside of the United States, such repatriation would likely be subject to restrictions by local laws and/or tax consequences, including foreign withholding taxes. Our cash and cash equivalents consisted of cash deposits and money market funds, which are highly liquid and are intended to support our operating, investing, and financing needs.

Previous wording

On April 15, 2026, the Board approved recommitting the existing share repurchase program so that $250.0 million was available. For the three months ended June 30, 2026, we repurchased $10.1 million of our common stock. The remaining amount available under the share repurchase program as of June 30, 2026 was $239.9 million.

Current wording

On April 15, 2026, the Board approved recommitting the existing share repurchase program, making $250.0 million available for future purchases. For the six months ended September 30, 2026, we repurchased $119.3 million of our common stock, of which $1.4 million was unsettled as of September 30, 2026 and paid in October 2026. As of September 30, 2026, $130.7 million remained available under the share repurchase program.

Previous wording

–Net cash provided by operating activities was driven by net income adjusted for non-cash charges and a decrease in accounts receivable, partially offset by a decrease in accrued liabilities. Cash from operating activities can fluctuate period‑to‑period, including when customer payments are received and when certain expenses are paid. These working capital impacts are primarily timing‑based and reflect the normal course of our business operations. Management considers operating cash flow trends over multiple periods, as quarterly results may reflect normal variability in billing and collection cycles.

Current wording

–Net cash provided by operating activities was driven by net income adjusted for non-cash charges and a decrease in accounts receivable, partially offset by decreases in accrued liabilities and deferred revenue. Cash from operating activities can fluctuate period‑to‑period, including when customer payments are received and when certain expenses are paid. These working capital impacts are primarily timing‑based and reflect the normal course of our business operations. Management considers operating cash flow trends over multiple periods, as quarterly results may reflect normal variability in billing and collection cycles.

Previous wording

–Net cash used in investing activities was the result of $7.9 million for the purchase of investments and $0.6 million of capital expenditures.

Current wording

–Net cash used in investing activities was the result of $8.0 million for the purchase of investments and $4.5 million of capital expenditures.

Previous wording

–Net cash used in financing activities was primarily the result of $10.1 million of repurchases of our common stock.

Current wording

–Net cash used in financing activities was primarily the result of $117.9 million of repurchases of our common stock, partially offset by $6.6 million of proceeds from the Employee Stock Purchase Plan.

Previous wording

Working capital increased $18.6 million from $628.3 million as of March 31, 2026 to $646.9 million as of June 30, 2026. The net increase in working capital was primarily the result of decreases in accrued liabilities and the current portion of deferred revenue partially offset by a decrease in accounts receivable.

Current wording

Working capital decreased $28.0 million from $628.3 million as of March 31, 2026 to $600.3 million as of September 30, 2026. The net decrease in working capital was primarily the result of a decrease in accounts receivable, partially offset by decreases in accrued liabilities and the current portion of deferred revenue.