cvlt-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2023

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 1-33026

Commvault Systems, Inc.

(Exact name of registrant as specified in its charter)


Delaware						22-3447504
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1 Commvault Way

Tinton Falls, New Jersey 07724

(Address of principal executive offices, including zip code)

(732) 870-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CVLT	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of October 30, 2023, there were 43,792,454 shares of the registrant’s common stock, $0.01 par value, outstanding.

COMMVAULT SYSTEMS, INC.

FORM 10-Q

INDEX


		Page
Part I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets as of September 30, 2023 and March 31, 2023	1
	Unaudited Consolidated Statements of Operations for the three and six months ended September 30, 2023 and 2022	2
	Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended September 30, 2023 and 2022	3
	Unaudited Consolidated Statements of Stockholders’ Equity for the three and six months ended September 30, 2023 and 2022	4
	Unaudited Consolidated Statements of Cash Flows for the six months ended September 30, 2023 and 2022	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	29

Part II – OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30

SIGNATURES		31

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Commvault Systems, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)


	September 30, 2023		March 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	283,287	$	287,778


Trade accounts receivable, net	196,434		210,441
Assets held for sale	38,680		38,680
Other current assets	21,560		14,015
Total current assets	539,961		550,914

Property and equipment, net	7,471		8,287
Operating lease assets	12,995		11,784
Deferred commissions cost	58,855		59,612
Intangible asset, net	1,667		2,292
Goodwill	127,780		127,780
Other assets	23,963		21,905
Total assets	$	772,692	$	782,574
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	136	$	108
Accrued liabilities	93,788		97,888
Current portion of operating lease liabilities	4,848		4,518
Deferred revenue	304,977		307,562
Total current liabilities	403,749		410,076
Deferred revenue, less current portion	174,061		174,393
Deferred tax liabilities, net	495		134
Long-term operating lease liabilities	9,194		8,260
Other liabilities	3,670		3,613
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.01 par value: 50,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value: 250,000 shares authorized, 43,918 shares and 44,140 shares issued and outstanding at September 30, 2023 and March 31, 2023, respectively	438		440
Additional paid-in capital	1,307,027		1,264,608
Accumulated deficit	(1,108,738)		(1,062,900)
Accumulated other comprehensive loss	(17,204)		(16,050)
Total stockholders’ equity	181,523		186,098
Total liabilities and stockholders’ equity	$	772,692	$	782,574

See accompanying unaudited notes to consolidated financial statements

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Commvault Systems, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Subscription	$	97,757	$	78,239	$	195,047	$	165,867
Perpetual license	14,388		19,831		27,543		37,629
Customer support	77,019		77,996		153,934		159,313
Other services	11,833		11,991		22,623		23,229
Total revenues	200,997		188,057		399,147		386,038
Cost of revenues:
Subscription	14,643		8,893		27,006		19,878
Perpetual license	642		656		1,054		1,282
Customer support	14,898		15,423		29,855		30,456
Other services	7,670		7,330		15,488		14,443
Total cost of revenues	37,853		32,302		73,403		66,059
Gross margin	163,144		155,755		325,744		319,979
Operating expenses:
Sales and marketing	84,712		81,299		168,839		166,218
Research and development	31,261		37,053		62,692		77,166
General and administrative	28,002		25,553		54,961		52,529
Restructuring	—		—		—		2,132
Depreciation and amortization	1,535		2,537		3,138		5,172
Total operating expenses	145,510		146,442		289,630		303,217
Income from operations	17,634		9,313		36,114		16,762
Interest income	1,369		291		2,149		552
Interest expense	(112)		(105)		(208)		(210)
Other income (expense), net	(154)		154		187		(235)
Income before income taxes	18,737		9,653		38,242		16,869
Income tax expense	5,720		5,135		12,596		8,840
Net income	$	13,017	$	4,518	$	25,646	$	8,029
Net income per common share:
Basic	$	0.30	$	0.10	$	0.58	$	0.18
Diluted	$	0.29	$	0.10	$	0.57	$	0.18
Weighted average common shares outstanding:
Basic	43,949		44,759		44,003		44,751
Diluted	44,903		45,540		45,010		45,745

See accompanying unaudited notes to consolidated financial statements

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Commvault Systems, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Net income	$	13,017	$	4,518	$	25,646	$	8,029
Other comprehensive loss:
Foreign currency translation adjustment	(792)		(1,874)		(1,154)		(3,589)
Comprehensive income	$	12,225	$	2,644	$	24,492	$	4,440

See accompanying unaudited notes to consolidated financial statements

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Commvault Systems, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)


	Common Stock			Additional Paid – In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of June 30, 2023	43,973	$	438	$	1,282,326	$	(1,094,336)	$	(16,412)	$	172,016
Stock-based compensation				23,615						23,615
Share issuances related to stock-based compensation	387	4		5,163						5,167
Repurchase of common stock	(442)	(4)		(4,077)		(27,419)				(31,500)
Net income						13,017				13,017
Other comprehensive loss								(792)		(792)
Balance as of September 30, 2023	43,918	$	438	$	1,307,027	$	(1,108,738)	$	(17,204)	$	181,523



	Common Stock			Additional Paid – In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of March 31, 2023	44,140	$	440	$	1,264,608	$	(1,062,900)	$	(16,050)	$	186,098
Stock-based compensation				47,339						47,339
Share issuances related to stock-based compensation	999	10		6,358						6,368
Repurchase of common stock	(1,221)	(12)		(11,278)		(71,484)				(82,774)
Net income						25,646				25,646
Other comprehensive loss								(1,154)		(1,154)
Balance as of September 30, 2023	43,918	$	438	$	1,307,027	$	(1,108,738)	$	(17,204)	$	181,523

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Commvault Systems, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)


	Common Stock			Additional Paid – In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of June 30, 2022	44,835	$	446	$	1,194,931	$	(911,315)	$	(13,578)	$	270,484
Stock-based compensation				25,327						25,327

Share issuances related to stock-based compensation	465	5		6,667						6,672
Repurchase of common stock	(703)	(7)		(6,258)		(33,599)				(39,864)
Net income						4,518				4,518
Other comprehensive loss								(1,874)		(1,874)
Balance as of September 30, 2022	44,597	$	444	$	1,220,667	$	(940,396)	$	(15,452)	$	265,263



	Common Stock			Additional Paid – In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of March 31, 2022	44,511	$	443	$	1,165,948	$	(898,699)	$	(11,863)	$	255,829
Stock-based compensation				56,422						56,422
Share issuances related to stock-based compensation	1,099	11		7,348						7,359
Repurchase of common stock	(1,013)	(10)		(9,051)		(49,726)				(58,787)
Net income						8,029				8,029
Other comprehensive loss								(3,589)		(3,589)
Balance as of September 30, 2022	44,597	$	444	$	1,220,667	$	(940,396)	$	(15,452)	$	265,263

See accompanying unaudited notes to consolidated financial statements

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Commvault Systems, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net income	$	25,646	$	8,029
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,196		5,855
Noncash stock-based compensation	47,339		56,422
Noncash change in fair value of equity securities	(187)		234


Amortization of deferred commissions cost	12,749		10,756


Changes in operating assets and liabilities:
Trade accounts receivable	8,245		15,863
Operating lease assets and liabilities, net	65		(181)
Other current assets and Other assets	(3,832)		(461)
Deferred commissions cost	(12,561)		(13,017)
Accounts payable	32		(213)
Accrued liabilities	(3,963)		(28,604)
Deferred revenue	1,746		16,464
Other liabilities	899		1,130
Net cash provided by operating activities	79,374		72,277
Cash flows from investing activities


Purchase of property and equipment	(1,413)		(1,381)
Purchase of equity securities	(572)		(1,793)

Net cash used in investing activities	(1,985)		(3,174)
Cash flows from financing activities
Repurchase of common stock	(82,357)		(58,787)
Proceeds from stock-based compensation plans	6,368		7,359
Payment of debt issuance costs	—		(63)

Net cash used in financing activities	(75,989)		(51,491)
Effects of exchange rate — changes in cash	(5,891)		(22,634)
Net decrease in cash and cash equivalents	(4,491)		(5,022)
Cash and cash equivalents at beginning of period	287,778		267,507
Cash and cash equivalents at end of period	$	283,287	$	262,485

See accompanying unaudited notes to consolidated financial statements

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Commvault Systems, Inc.

Notes to Consolidated Financial Statements - Unaudited

(In thousands, except per share data)

1. Basis of Presentation

Commvault Systems, Inc. and its subsidiaries ("Commvault," "we," "us," or "our") provides its customers with a data protection platform that helps them secure, defend and recover their most precious asset, their data. We provide these products and services for their data across the following environments: on-premises, hybrid, or multi-cloud. Our data protection offerings are delivered via self-managed software, software-as-a-service (SaaS), integrated appliances, or managed by partners. Customers use our technology to protect themselves from threats like ransomware and recover their data efficiently.

The consolidated financial statements of Commvault as of September 30, 2023 and for the three and six months ended September 30, 2023 and 2022 are unaudited, and in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the financial statements and notes in our Annual Report on Form 10-K for fiscal 2023. The results reported in these financial statements should not necessarily be taken as indicative of results that may be expected for the entire fiscal year.

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments and estimates that affect the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The amounts of assets and liabilities reported in our balance sheets and the amounts of revenues and expenses reported for each of our periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, income taxes and related reserves, deferred commissions and goodwill. Actual results could differ from those estimates.

2. Summary of Significant Accounting Policies

Reclassification of Prior Year Balances

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications have no impact on the amount of total revenues or net income. Beginning in fiscal 2024, the software and services line items on the consolidated statements of operations, related to revenues and cost of revenues, will be presented in the following categories:

Subscription - The amounts on this line include the revenues and costs of recurring time-based arrangements, including the software portion of term-based licenses and SaaS offerings. The software component of term-based licenses is typically recognized when the software is delivered or made available for download. For SaaS offerings, revenue is generally recognized ratably over the contract term beginning on the date that the service is made available to the customer.

Perpetual license - The amounts on this line include the revenues and costs from the sale of perpetual software licenses. Perpetual software license revenue is typically recognized when the software is delivered or made available for download.

Customer support - The amounts on this line include customer support revenues and costs associated with our software products. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support, and other premium support offerings, for both subscription software and perpetual software license arrangements. Customer support revenue is typically recognized ratably over the term of the customer support agreement.

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Commvault Systems, Inc.

Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

Other services - The amounts included on this line consist primarily of revenues and costs related to professional service offerings, including consultation, assessment and design, installation services, and customer education. Revenues related to other professional services are typically recognized as the services are performed.

Recently Adopted and Recently Issued Accounting Standards

There were no recently adopted accounting standards that had a material effect on our condensed consolidated financial statements and accompanying disclosures, and no recently issued accounting standards that are expected to have a material impact on our condensed consolidated financial statements and accompanying disclosures.

Concentration of Credit Risk

We grant credit to customers in a wide variety of industries worldwide and generally do not require collateral. Historically, credit losses relating to these customers have been minimal.

Sales through our distribution agreement with Arrow Enterprise Computing Solutions, Inc. (“Arrow”) totaled 35% and 36% of total revenues for the three months ended September 30, 2023 and 2022, respectively, and 36% for both the six months ended September 30, 2023 and 2022. Arrow accounted for approximately 25% and 34% of total accounts receivable as of September 30, 2023 and March 31, 2023, respectively.

Sales through our distribution agreement with Carahsoft Technology Corp. resulted in approximately 15% of total accounts receivable as of September 30, 2023.

Fair Value of Financial Instruments

The carrying amounts of our cash, cash equivalents, accounts receivable and accounts payable approximate their fair values due to the short-term maturity of these instruments. Our cash equivalents balance consists primarily of U.S. Treasury Bills with maturities of one month or less.

The following table summarizes the composition of our financial assets measured at fair value at September 30, 2023:


	Level 1		Level 2	Level 3	Total
Cash equivalents	$	24,903	—	—	$	24,903

There were no financial assets measured at fair value on a recurring basis as of September 30, 2022.

Equity Securities Accounted for at Net Asset Value

We held equity interests in private equity funds of $6,659 as of September 30, 2023, which are accounted for under the net asset value practical expedient as permitted under ASC 820, Fair Value Measurement. These investments are included in other assets in the accompanying consolidated balance sheets. The net asset values of these investments are determined using quarterly capital statements from the funds, which are based on our contributions to the funds, allocation of profit and loss and changes in fair value of the underlying fund investments. Changes in fair value as reported on the capital statements are recorded through the consolidated statements of operations as non-operating income or expense. These private equity funds focus on making investments in key technology sectors, principally by investing in companies at expansion capital and growth equity stages. We had total unfunded commitments in private equity funds of $3,501 as of September 30, 2023.

Deferred Commissions Cost

Sales commissions, bonuses, and related payroll taxes earned by our employees are considered incremental and recoverable costs of obtaining a contract with a customer. Our typical contracts include performance obligations related to term-based software licenses, SaaS offerings, perpetual software licenses, software updates, and customer support. In these contracts, incremental costs of obtaining a contract are allocated to the performance obligations based on the relative estimated standalone selling prices and then recognized on a systematic basis that is consistent with the transfer of the goods or services to which the asset relates. We do not pay commissions on annual renewals of customer support contracts for perpetual licenses. The costs allocated to software and products are expensed at the time of sale, when revenue for the functional software license or

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Commvault Systems, Inc.

Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

appliance is recognized. The costs allocated to software updates and customer support for perpetual licenses are amortized ratably over a period of approximately five years, the expected period of benefit of the asset capitalized. We currently estimate a period of five years is appropriate based on consideration of historical average customer life and the estimated useful life of the underlying software sold as part of the transaction. The commission paid on the renewal of subscription arrangements is not commensurate with the commission paid on the initial purchase. As a result, the cost of commissions allocated to as-a-service subscription offerings, software updates and customer support on the initial term-based software license transactions are amortized over a period of approximately five years, consistent with the accounting for these costs associated with perpetual licenses. The costs of commissions allocated to as-a-service offerings, software updates and support for the renewal of term-based software licenses is limited to the contractual period of the arrangement, as we pay a commensurate renewal commission upon the next renewal of the subscription software license and related updates and support.

The incremental costs attributable to professional services are generally amortized over the period the related services are provided and revenue is recognized. Amortization expense related to these costs is included in sales and marketing expenses in the accompanying consolidated statements of operations.

3. Revenue

We derive revenues from various sources, including subscriptions, perpetual software licenses, customer support contracts and other services.

Subscription

Subscription includes the revenues derived from time-based arrangements, including the software portion of term-based licenses and SaaS offerings. The software component of term-based licenses is typically recognized when the software is delivered or made available for download. The term of our subscription arrangements is typically one to three years, but can range between one and five years. For SaaS offerings, revenue is generally recognized ratably over the contract term beginning on the date that the service is made available to the customer.

Perpetual License

Perpetual license includes the revenues from the sale of perpetual software licenses. Perpetual software license revenue is typically recognized when the software is delivered or made available for download.

Customer Support

Customer support includes revenues associated with support contracts tied to our software products. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support, and other premium support offerings, for both subscription software and perpetual software license arrangements. We sell our customer support contracts as a percentage of net software purchases. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year on our perpetual licenses and over the term on our term-based licenses.

Other Services

Other services consist primarily of revenues related to professional service offerings, including consultation, assessment and design, installation services, and customer education. Revenues related to other professional services are typically recognized as the services are performed.

We do not customize our software licenses (both perpetual and term-based) and installation services are not required. Software licenses are delivered before related services are provided and are functional without professional services, updates and technical support. We have concluded that our software licenses (both perpetual and term-based) are functional intellectual property that is distinct, as the user can benefit from the software on its own. Revenues for both perpetual and term-based licenses are typically recognized when the software is delivered and/or made available for download as this is the point the user of the software can direct the use of, and obtain substantially all of the remaining benefits from the functional intellectual property. We do not recognize subscription revenue related to the renewal of that subscription earlier than the beginning of the new subscription period.

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Commvault Systems, Inc.

Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

We also offer appliances that integrate our software with hardware and address a wide-range of business needs and use cases, ranging from support for remote or branch offices with limited IT staff up to large corporate data centers. Our appliances are almost exclusively sold via a software only model in which we sell software to a third party, which assembles an integrated appliance that is sold to end user customers. As a result, the revenues and costs associated with hardware are usually not included in our financial statements.

Our typical performance obligations include the following:


Performance Obligation	When Performance Obligation is Typically Satisfied	When Payment is Typically Due	How Standalone Selling Price is Typically Estimated
Subscription
Term-based software licenses	Upon shipment or made available for download (point in time)	Within 90 days of shipment except for certain subscription licenses which are paid for over time	Residual approach
Software-as-a-service (SaaS)	Ratably over the course of the contract (over time)	Annually or at the beginning of the contract period	Observable in transactions without multiple performance obligations
Perpetual License
Perpetual software licenses	Upon shipment or made available for download (point in time)	Within 90 days of shipment	Residual approach
Customer Support
Software updates	Ratably over the course of the support contract (over time)	At the beginning of the contract period	Observable in renewal transactions
Customer support	Ratably over the course of the support contract (over time)	At the beginning of the contract period	Observable in renewal transactions
Other Services
Other professional services (except for education services)	As work is performed (over time)	Within 90 days of services being performed	Observable in transactions without multiple performance obligations
Education services	When the class is taught (point in time)	Within 90 days of services being performed	Observable in transactions without multiple performance obligations

Judgments related to revenue recognition

Most of our contracts contain multiple performance obligations. For these contracts, we evaluate and account for individual performance obligations separately if they are determined to be distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software licenses (both perpetual and term-based) are typically estimated using the residual approach. Standalone selling prices for SaaS, customer support contracts, and other services are typically estimated based on observable transactions when these services are sold on a standalone basis. We recognize revenue net of sales tax.

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Commvault Systems, Inc.

Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

Disaggregation of Revenues

We disaggregate revenues from contracts with customers into geographical regions. Our Americas region includes the United States, Canada, and Latin America. Our International region primarily includes Europe, Middle East, Africa, Australia, India, Southeast Asia, and China.


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Americas	$	120,300	$	116,191	$	242,424	$	238,800
International	80,697		71,866		156,723		147,238
Total revenues	$	200,997	$	188,057	$	399,147	$	386,038

Remaining Performance Obligations

Remaining performance obligations represent expected future revenues from existing contracts where performance obligations are unsatisfied or partially unsatisfied at the end of the reporting period. As of September 30, 2023, our remaining performance obligations (inclusive of deferred revenues) were $547,762 of which approximately 64% is expected to be recognized as revenue over the next 12 months and the remainder recognized thereafter. The vast majority of these revenues consist of customer support, other services and SaaS arrangements. Other services consists primarily of professional services revenue which is contingent upon a number of factors, including customers' needs and scheduling.

The amount of revenue recognized in the period that was included in the opening deferred revenue balance was $85,420 and $193,365 for the three and six months ended September 30, 2023, respectively. The amount of revenue recognized from performance obligations satisfied in prior periods was not significant.

Information about Contract Balances

Amounts collected in advance of services being provided are accounted for as deferred revenue. Nearly all of our deferred revenue balance is related to customer support, SaaS arrangements, and other services.

In some arrangements we allow customers to pay for term-based software licenses and products over the term of the software license. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables, which are anticipated to be invoiced in the next twelve months, are included in accounts receivable on the consolidated balance sheets. Long-term unbilled receivables are included in other assets. The opening and closing balances of our accounts receivable, unbilled receivables, and deferred revenues are as follows:


	Accounts receivable		Unbilled receivable (current)		Unbilled receivable (long-term)		Deferred revenue (current)		Deferred revenue (long-term)
Opening balance as of March 31, 2023	$	188,736	$	21,705	$	9,867	$	307,562	$	174,393
Increase (decrease), net	(17,607)		3,600		1,954		(2,585)		(332)
Ending balance as of September 30, 2023	$	171,129	$	25,305	$	11,821	$	304,977	$	174,061

The net decrease in accounts receivable (inclusive of unbilled receivables) is a result of a decrease in revenues relative to the fourth quarter of the prior fiscal year. The decrease in deferred revenue is primarily the result of the decrease in customer support contract billings, partially offset by an increase in SaaS contracts which are billed upfront but recognized ratably over the contract period.

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Commvault Systems, Inc.

Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

4. Assets Held for Sale

During the fourth quarter of fiscal 2023, we entered into an agreement to sell our owned corporate headquarters in Tinton Falls, New Jersey for $40,000 in cash consideration and determined the assets and land related to headquarters met the criteria for classification as assets held for sale in accordance with ASC 360, Impairment and Disposal of Long-Lived Assets. The property's estimated fair value, less estimated costs to sell, is $38,680. The sale is expected to close in the third quarter of fiscal 2024. Upon closing of the transaction, we will enter into a lease for a portion of the premises.

5. Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares during the period. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the vesting of restricted stock units, shares to be purchased under the Employee Stock Purchase Plan ("ESPP"), and the exercise of stock options. The dilutive effect of such potential common shares is reflected in diluted earnings per share by application of the treasury stock method.

The following table sets forth the reconciliation of basic and diluted net income per common share:


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Net income	$	13,017	$	4,518	$	25,646	$	8,029
Basic net income per common share:
Basic weighted average shares outstanding	43,949		44,759		44,003		44,751
Basic net income per common share	$	0.30	$	0.10	$	0.58	$	0.18
Diluted net income per common share:
Basic weighted average shares outstanding	43,949		44,759		44,003		44,751
Dilutive effect of stock options and restricted stock units	954		781		1,007		994
Diluted weighted average shares outstanding	44,903		45,540		45,010		45,745
Diluted net income per common share	$	0.29	$	0.10	$	0.57	$	0.18

The diluted weighted average shares outstanding exclude restricted stock units, performance restricted stock units, shares to be purchased under the ESPP and outstanding stock options totaling 498 and 882 for the three months ended September 30, 2023 and 2022, respectively, and 526 and 523 for the six months ended September 30, 2023 and 2022, respectively, because the effect would have been anti-dilutive.

6. Commitments and Contingencies

We do not believe that we are currently party to any pending legal action that could reasonably be expected to have a material adverse effect on our business or operating results.

7. Capitalization

Our stock repurchase program has been funded by our existing cash and cash equivalent balances, as well as cash flows provided by our operations.

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Commvault Systems, Inc.

Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

On April 20, 2023, the Board of Directors (the "Board") approved an increase of the existing share repurchase program so that $250,000 was available. The Board's authorization has no expiration date. For the six months ended September 30, 2023, we repurchased $82,357 of our common stock, or approximately 1,221 shares. The remaining amount available under the current authorization as of September 30, 2023 was $173,609.

8. Stock Plans

The following table presents the stock-based compensation expense included in cost of revenues, sales and marketing, research and development, general and administrative and restructuring expenses for the three and six months ended September 30, 2023 and 2022. Stock-based compensation is attributable to restricted stock units, performance-based awards and the ESPP.


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Cost of revenues	$	1,599	$	1,226	$	3,289	$	2,469
Sales and marketing	9,941		10,165		19,645		21,558
Research and development	5,385		7,793		10,732		17,034
General and administrative	6,690		6,143		13,673		14,074
Restructuring	—		—		—		1,287
Stock-based compensation expense	$	23,615	$	25,327	$	47,339	$	56,422

As of September 30, 2023, there was $123,069 of unrecognized stock-based compensation expense that is expected to be recognized over a weighted average period of 1.72 years. We account for forfeitures as they occur. To the extent that awards are forfeited, stock-based compensation will be different from our current estimate.

Stock option activity was not significant for both the six months ended September 30, 2023 and 2022.

Restricted Stock Units

Restricted stock unit activity for the six months ended September 30, 2023 was as follows:


Non-vested Restricted Stock Units	Number of Awards	Weighted Average Grant Date Fair Value
Non-vested as of March 31, 2023	2,953	$	62.52
Awarded	666	67.94
Vested	(877)	57.73
Forfeited	(178)	65.62
Non-vested as of September 30, 2023	2,564	$	65.35

The weighted average fair value of restricted stock units awarded was $70.99 and $67.94 per unit during the three and six months ended September 30, 2023, respectively, and $57.00 and $61.69 per unit during the three and six months ended September 30, 2022, respectively. The weighted average fair value of awards includes the awards with a market condition described below.

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Commvault Systems, Inc.

Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

Performance Based Awards

In the six months ended September 30, 2023, we granted 120 performance restricted stock units ("PSUs") to certain executives. Vesting of these awards is contingent upon i) us meeting certain non-GAAP performance goals (performance-based) in fiscal 2024 and ii) our customary service periods. The awards vest over three years and have the potential to vest between 0% and 200% (240 shares) based on actual fiscal 2024 performance. The vesting quantity of these awards may vary based on actual fiscal 2024 performance. The related stock-based compensation expense is determined based on the value of the underlying shares on the date of grant and is recognized over the vesting term using the accelerated method. During the interim financial periods, management estimates the probable number of PSUs that would vest until the ultimate achievement of the performance goals is known. The awards are included in the restricted stock unit table.

Awards with a Market Condition

In the six months ended September 30, 2023, we granted 120 market performance stock units to certain executives. The vesting of these awards is contingent upon us meeting certain total shareholder return ("TSR") levels as compared to the Russell 3000 market index over the next three years. The awards vest in three annual tranches and have the potential to vest between 0% and 200% (240 shares) based on TSR performance. The related stock-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized using the accelerated method over the vesting term. The estimated fair value was calculated using a Monte Carlo simulation model. The fair value of the awards granted during the six months ended September 30, 2023 was $87.90 per unit. The awards are included in the restricted stock unit table.

Employee Stock Purchase Plan

The ESPP is a shareholder approved plan under which substantially all employees may purchase our common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the ESPP are limited to 10% of the employee’s salary and employees may not purchase more than $25 of stock during any calendar year. Employees purchased 96 shares in exchange for $5,164 of proceeds in the six months ended September 30, 2023, and 107 shares in exchange for $5,418 of proceeds in the six months ended September 30, 2022. The ESPP is considered compensatory and the fair value of the discount and look back provision are estimated using the Black-Scholes formula and recognized over the six-month withholding period prior to purchase. The total expense associated with the ESPP for the six months ended September 30, 2023 and 2022 was $1,662 and $1,927, respectively. As of September 30, 2023, there was approximately $1,091 of unrecognized cost related to the current offering period of our ESPP.

9. Income Taxes

Income tax expense was $5,720 and $12,596 in the three and six months ended September 30, 2023, respectively, compared to expense of $5,135 and $8,840 in the three and six months ended September 30, 2022, respectively. The increase in income tax expense relative to the prior year relates primarily to current federal and state taxes driven by the increase of pre-tax income relative to the prior year quarter. We believe that it is more likely than not that we will not realize the benefits of our gross deferred tax assets and therefore continue to record a valuation allowance to reduce the carrying value of these gross deferred tax assets, net of the impact of the reversal of taxable temporary differences, to zero as of September 30, 2023.

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Commvault Systems, Inc.

Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

10. Revolving Credit Facility

On December 13, 2021, we entered into a five-year $100,000 senior secured revolving credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A. The Credit Facility is available for share repurchases, general corporate purposes, and letters of credit. The Credit Facility contains financial maintenance covenants, including a leverage ratio and interest coverage ratio. The Credit Facility also contains certain customary events of default which would permit the lender to, among other things, declare all loans then outstanding to be immediately due and payable if such default is not cured within applicable grace periods. The Credit Facility also limits our ability to incur certain additional indebtedness, create or permit liens on assets, make acquisitions, make investments, loans or advances, sell or transfer assets, pay dividends or distributions, and engage in certain transactions with foreign affiliates. Outstanding borrowings under the Credit Facility accrue interest at an annual rate equal to the Secured Overnight Financing Rate plus 1.25% subject to increases based on our actual leverage. The unused balance on the Credit Facility is also subject to a 0.25% annual interest charge subject to increases based on our actual leverage. As of September 30, 2023, there were no borrowings under the Credit Facility and we were in compliance with all covenants.

We have deferred the expense related to debt issuance costs, which are classified as other assets, and will amortize the costs into interest expense over the term of the Credit Facility. Unamortized amounts at September 30, 2023 were $370. The amortization of debt issuance costs and interest expense incurred was $93 for both the three months ended September 30, 2023 and 2022, and $185 for both the six months ended September 30, 2023 and 2022.


Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced programs	Approximate dollar value of shares that may yet be purchased under the program (in thousands)
July 1-31, 2023	131,700	$	75.35	131,700	$195,012
August 1-31, 2023	164,200	$	69.65	164,200	$183,577
September 1-30, 2023	146,074	$	68.24	146,074	$173,609
Three months ended September 30, 2023	441,974	$	70.88	441,974


Exhibit No.			Description
3.1			Certificate of Amendment of Amended and Restated Certificate of Incorporation of Commvault Systems, Inc.
10.1**			The Commvault Systems, Inc. 2016 Omnibus Incentive Plan (As Amended Through the Sixth Amendment Thereof) (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022)
31.1			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*			Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*			Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Furnished herewith
**Management contract or compensatory plan or arrangement

SEC Form 10-Q filed by Commvault Systems Inc.