Commvault (CVLT) Q2 2027 earnings review
Commvault lifts its annual plan, but license sales slip again
Commvault, the maker of data backup and cyber recovery software, rebuilt its recurring sales momentum and raised its full-year targets while underlying revenue growth stayed in the mid-teens. Subscription revenue rose 21% from a weak year-ago period, and chief executive Sanjay Mirchandani credited enterprise demand for AI resilience as new recurring contract additions rebounded to $50 million. Even so, by our math the raised full-year plan has subscription revenue growth stepping back down to 15% over the second half.
| Subscription revenue | $268.5M +21% from a year ago (+0.6% from last quarter) |
|---|---|
| New subscription recurring revenue (ARR) | $49.6M up from $39.6M last quarter ($51.0M constant currency) |
| Operating margin, excluding one-offs | 21.9% +3.3 percentage points from a year ago |
| Full-year subscription ARR outlook | Raised $5M middle of the range: $1,210M (+19% growth) |
⚖️ Verdict: 🟢 Bullish
The story got better because quarterly recurring contract additions recovered from last quarter's drop to $40 million and allowed Commvault to raise its full-year recurring revenue, margin and cash flow plans. Cloud gross margin also held at 70%, funding $108 million of share buybacks in the quarter. One caution:existing customer retention slipped a point to 113%, and on-premise term license sales fell from last quarter for a third straight time.
The question now is whether cloud software growth and new identity tools can offset slowing on-premise licenses and shrinking new-customer additions. If they can, total recurring revenue growth holds near 20%; if they cannot, growth drifts toward the 13% expansion rate of existing customers. Third-quarter recurring contract additions against the $53 million pace implied by the full-year plan will tell.
🐂 Bull Case
New Recurring Sales Rebounded and Lifted the Plan
Commvault sells data backup and recovery software, and tracks its progress through subscription annual recurring revenue (ARR), the yearly value of active subscription contracts. Last quarter, new additions to subscription ARR dropped to $39.6 million, raising doubts about whether the company could meet its full-year target.
This quarter, the software maker added $49.6 million of reported subscription ARR, or $51.0 million at constant March currency rates, taking the total to $1.104 billion. Cloud-hosted software-as-a-service (SaaS) drove $30.1 million of the increase, and management raised the full-year subscription ARR outlook by $8 million before a $3 million currency drag.
The rebound matters because it matches the roughly $50 million quarterly pace the full-year plan required. Even so, one quarter of recovery only eases the concern rather than settling it. By our math, the raised target of $1.205 billion to $1.215 billion still requires $106 million of additions over the second half, or $53 million per quarter.
What to watch: third-quarter net new subscription ARR. A reading of $53 million or more would confirm that second-half contract renewals are lifting sales at the pace the raised outlook requires.
Cloud Scale and Cost Control Lifted Margins and Buybacks
Commvault is turning revenue growth into higher profit margins and returning that cash to shareholders. Operating profit excluding one-offs (non-GAAP EBIT, which leaves out stock-based pay and restructuring) reached $68.3 million, or 21.9% of revenue, up 3.3 percentage points from a year ago and nearly two points above the company's 20% target.
- Cloud-hosted SaaS gross margin: 70.0% by our math, up 6.5 percentage points from 63.5% a year ago
- General and administrative overhead: 13.5% of revenue, down 1.9 percentage points from a year ago
- Sales, marketing and research costs: down 1.8 percentage points of revenue combined
- Share buybacks: $107.7 million in the quarter, reducing the diluted share count by 6.6% from a year ago to 42.2 million
Because the cloud service now keeps 70 cents of every dollar after direct hosting costs and restructuring kept operating expenses in check, per-share profit excluding one-offs jumped 52% to $1.38. Commvault also accelerated buybacks from $10.1 million in the first quarter to $107.7 million, spending 97% of its first-half free cash flow against a full-year goal of 60%.
What to watch: SaaS gross margin and share repurchases in the third quarter. Holding cloud gross margin at 70% while operating margin stays above the 20.5% to 21.0% plan would show the cost structure can fund further buybacks.
🐻 Bear Case
Subscription Growth Jump Rested on an Easy Comparison
Commvault highlighted that subscription revenue — sales from cloud software and multi-year customer licenses — rose 21% from a year ago to $268.5 million, up from 16% growth in the first quarter. That jump looks like a turnaround, but it came from comparing against an unusually weak quarter last year when subscription sales dipped to $222.4 million.
From last quarter, total subscription revenue rose just 0.6%. Within that total, term-based license revenue — software customers install on their own servers — grew 13% from a year ago on the easy comparison, but fell 4.9% from the first quarter to $105.0 million. That marks a third consecutive quarterly drop from $119.0 million in last year's third quarter.
The company's own outlook confirms the step-up was temporary. Management expects third-quarter subscription revenue of $293 million to $297 million, which slows growth back to 14.7% from a year ago at the middle of the range. By our math, the full-year outlook of $1.127 billion to $1.133 billion leaves fourth-quarter growth at 14.5%.
What to watch: third-quarter term-based license revenue. Another sequential drop during the seasonally strong December quarter would show that customer shifts away from on-premise software are weighing on growth.
Recurring Growth and Customer Expansion Both Slowed
Across multiple quarters, Commvault's recurring contract growth is slowing down while management gives investors fewer numbers to track it. Subscription ARR rose 20.2% from a year ago, down from 31.6% three quarters ago, and cloud-hosted SaaS ARR slowed to 35.4% from 56.2% a year ago.
At the same time, the subscription net dollar retention rate (NRR) — what existing subscription customers spend a year later after upgrades and cancellations — slipped to 113% from 114% last quarter. Because existing customers added 13 points of growth, new customers and newly acquired products added only about 7.2 percentage points by our math, down from roughly 18 points a year ago.
Meanwhile, "Total ARR, which also included the annualized maintenance contract on perpetual licenses, is no longer disclosed", Commvault wrote, and the release again omitted a separate NRR figure for SaaS. What to watch: whether the quarterly filing or call restores SaaS NRR and stops subscription NRR from slipping below 113%, which would mean existing customers are expanding more slowly too.
New Identity and Cloud Tools Lack Revenue Figures
"With AI accelerating both innovation and risk in the enterprise, resilience continues to be a business imperative," chief executive Sanjay Mirchandani said. Commvault is pitching identity protection and cyber recovery as the main reason customers buy more software, and last quarter management said identity and data security drove over one-third of new subscription ARR.
This quarter, the software group launched Active Directory Pre Recover to "reduce clean recovery of Active Directory from hours to minutes", expanded its government cloud service for "protection and recovery of sensitive government data", and linked Threat Scan with Google Threat Intelligence to "identify clean recovery points faster". Yet the release gives no revenue or contract figures for AI or identity products, nor multi-product customer counts.
What to watch: whether management quantifies identity resilience and multi-product SaaS adoption on the call. Without dollar figures, investors cannot tell if these launches are bringing in new spending or just keeping existing customers from leaving.
Risks this quarter didn't answer
Four standing concerns from last quarter's filing got no new details in the earnings release and depend on the upcoming quarterly report.
- Shareholder lawsuits: class-action and derivative suits filed in May and June 2026 had no loss reserve in the first quarter; the quarterly filing's legal note will show any update.
- Pricing and packaging overhaul: Commvault spent $0 on consultants for this project in the second quarter after $6.5 million in the first quarter, but still has not explained how the changes affect contract renewals.
- Distributor concentration: two indirect partners accounted for 43% of revenue and 39% of customer bills due in the first quarter; the filing's concentration note will show the latest shares.
- Convertible debt: $883.0 million of net convertible notes due in 2030 remain on the balance sheet against $897.3 million of cash.
👓 Other Themes
International Revenue Growth Slowed to Single Digits
Revenue in the Americas region — the United States, Canada and Latin America — accelerated to 15.5% growth from a year ago, reaching $194.1 million after two quarters of 9% growth. By contrast, International revenue across Europe, Asia and Australia slowed for a third consecutive quarter to 9.5% growth ($118.3 million), down from 26% in last year's third quarter, while currency moves since March trimmed $3 million from full-year subscription ARR.
💲 Other KPIs
Total deferred revenue — cash customers have paid for software and support not yet delivered — rose 13.1% from a year ago by our math, matching total revenue growth. However, the balance slipped 0.1% from last quarter and is down from $778.7 million in March as older perpetual support contracts wind down.
Free cash flow — operating cash flow minus equipment purchases — dipped 3.7% from $73.6 million a year ago, representing 22.7% of revenue by our math. For the first six months of the fiscal year, free cash flow is up 18.0% to $122.0 million, keeping the company ahead of its typical first-half pace.
Uncollected customer bills fell 15.1% from $330.5 million at the end of March by our math, even though quarterly sales stayed near $312 million. Strong bill collections after the fiscal fourth-quarter renewal peak brought in $49.1 million of operating cash over the first six months, though receivables rose $9.6 million during the second quarter itself.
🔮 Guidance
New. The plan calls for 14.7% growth from a year ago and 9.9% growth from this quarter at the middle of the range, by our math. That steps down from this quarter's 20.8% growth because Commvault now compares against a much stronger third quarter last year ($257.3 million). If the company's 2.5% average beat over the last four quarters holds, third-quarter subscription revenue would land near $302 million.
New. Management forecasts operating margin excluding one-offs to step down by about 1.1 percentage points from this quarter's 21.9%, though up 1.2 points from 19.6% in last year's third quarter. The software maker has beaten its quarterly margin outlook by nearly two to four percentage points in recent quarters.
Raised. The middle of the range moved up $6 million to $1.130 billion, or 16.4% growth for the year by our math. It is the second raise this year: +$4 million in the first quarter and +$6 million now. With $535.5 million delivered in the first half and $295 million planned for the third quarter, the outlook leaves $299.5 million, or 14.5% growth, for the fourth quarter.
Raised. Commvault lifted the middle of the range by $5 million to $1.210 billion, or 19.2% growth from last year's close by our math. Management raised the underlying outlook by $8 million while currency moves since March subtracted $3 million. By our math, reaching the middle of the range requires $106.1 million of net new subscription ARR across the second half, or $53.0 million per quarter.
Raised. Management tightened the target to a range whose 21.25% middle is up 0.25 percentage points from last quarter's plan, following a 0.5-point raise in the first quarter. After posting 22.8% in the first quarter and 21.9% in the second, the full-year range implies margins step down to roughly 20.2% in the fourth quarter.
Raised. The middle of the range rose $5 million to $260 million, or 9.6% growth from last year's $237.1 million by our math. With $122.0 million generated in the first half, the plan leaves $138.0 million for the second half, which is seasonally when Commvault collects the largest share of its annual billings.
Unchanged. The plan keeps the full-year diluted share count near 42 million, down 6.6% from a year ago. Diluted shares averaged 42.2 million in the second quarter and 42.1 million across the first half after Commvault repurchased 906,000 shares for $119 million over the six-month period.
❓ Key Questions
Why did the release drop the full-year revenue outlook?
In the prior two quarters, management forecast full-year total revenue of $1.30 billion to $1.31 billion. The release's outlook table omits total revenue while raising subscription revenue by $6 million, leaving unclear whether perpetual license and support sales are falling faster than planned.
What was the net retention rate for cloud SaaS?
Commvault stopped publishing its cloud-only net dollar retention rate last quarter after it slid from 127% to 121% over a year, and overall subscription retention slipped a point to 113% this quarter. A specific SaaS retention figure would show if cloud expansion is cooling.
When will the pricing overhaul show up in recurring sales?
The company spent $6.5 million on third-party consultants in the first quarter for a pricing and packaging initiative, and $0 this quarter. Management has not explained what changed in customer contracts or which quarter's recurring revenue will reflect the new prices.
Why did on-premise term license sales fall for three quarters?
Term-based license revenue rose 13% from an easy year-ago comparison, but dropped 5% from last quarter to $105 million, its third straight sequential decline. Investors need to know how much of that drop is customers switching to Commvault's cloud versus delaying purchases.