Commvault Systems, Inc. (CVLT) Q3 2026 Earnings Call Transcript

Commvault Systems, Inc. (NASDAQ: CVLT) Q3 2026 Earnings Call dated Jan. 27, 2026

Corporate Participants:

Mike Melnick — Vice President of Investor Relations

Sanjay Mirchandani — President & Chief Executive Officer

Danielle Abrahamson — Chief Accounting Officer

Analysts:

Thomas Blakey — Analyst

Rudy Kessinger — Analyst

Howard Ma — Analyst

Eric Heath — Analyst

Michael Romanelli — Analyst

Param Singh — Analyst

James Fish — Analyst

Shrenik Kothari — Analyst

Junaid Siddiqui — Analyst

Aaron Rakers — Analyst

Jason Ader — Analyst

Presentation:

operator

Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time I I would like to welcome everyone to commvault Q3 fiscal 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press Star then the number one on your telephone keypad. To withdraw your question, press Star one again. I would now like to turn the conference over to Mike Melnick, Vice President of Investor Relations.

You may begin.

Mike Melnick — Vice President of Investor Relations

Good morning and welcome to our earnings conference call. Before we begin, I’d like to remind you that statements made on today’s call will include forward looking statements about Commvault’s future expectations, plans and prospects. All such forward looking statements are subject to risks, uncertainties and assumptions. Please refer to the cautionary language in today’s earnings release and Commvault’s most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties that could cause the company’s actual results to be materially different from those contemplated in these forward looking statements. Commvault does not assume any obligation to update these statements during this call.

Commvault’s financial results are presented on a non GAAP basis. A reconciliation between the non GAAP and GAAP measures can be found on our website. Thank you again for joining us. Now I’ll turn it over to our CEO Sanjay Merchandani for his opening remarks. Sanjay?

Sanjay Mirchandani — President & Chief Executive Officer

Good morning and thank you for joining us. Q3 was another solid quarter for Commvault. We reinforced our position as an innovation leader and garnered accolades from partners and industry analysts. Some financial highlights in the quarter include subscription revenue grew 30% to $206 million. This was fueled by a record land and expand quarter with the addition of 700 new subscription customers. Subscription ARR increased 28% to 941 million SaaS. ARR increased 40% to 364 million and we achieved the rule of 40 with a healthy balance between growth and profitability. Our momentum in Q3 is and year to date reflect the growing need for next generation cyber resilience in an AI driven hybrid and multi cloud world.

Resilience cannot be reactive, manual or fragmented. It needs to be continuous, always on and unified through a single control plane. Commvault uniquely delivers this innovation. I’m proud to share that in Q3 we were awarded our 1600th lifetime patent. I want to thank our engineering and IT teams for their continued commitment to excellence and innovation focused on customers. At our SHIFT event in November, we took innovation to the next level with the Commvault Cloud Unity platform release Unity brings together data security, identity resilience and cyber recovery on one platform, all enabled by the metallic AI fabric.

With Unity, customers are now equipped to drive their Res Ops or resilience operations. Res Ops is a discipline that unifies operations, security and infrastructure across the business. By bringing these silos together, organizations can plan, prepare and recover from a disruption or cyber attack. Customer, partner and industry feedback has been overwhelmingly positive. Dave Nowak, Deloitte’s cyber resilience lead, said, the Commvault Cloud Unity platform brings these elements together in a way we don’t see elsewhere in the market. We’re pleased to team with Commvault to help join customers, respond faster, reduce risk, and confidently adopt AI and cloud at scale while advancing resiliency.

IDC further validated this approach, stating, we believe Res Ops has an opportunity to resonate with customers as it is concise, with powerful implications and operational value. Res Ops is a fundamentally different approach from what legacy vendors provide today. Resilience in the age of AI requires us to one continuously secure data at the source and monitor for anomalies, 2 control the identities, human and non human, that access and use the data autonomously and three predictably recover data applications and operations at massive scale with the lowest total cost of ownership. Let’s take a moment to discuss each starting with data security.

As enterprises embrace AI and move to the cloud, they must also grapple with evolving and more sophisticated attacks. By combining Commvault’s metallic AI fabric with our multipoint stretch scan, synthetic recovery and clean room recovery offerings, customers can secure data at the source, identify, analyze and quarantine suspicious files, monitor for anomalies, and conduct recoveries with precision so they’re ready for an inevitable attack. Case in point, by embracing our threat scan and risk analysis capabilities, UNC Health, a long standing customer, is now able to scale its security with its data growth, saving time, reducing risk, supporting compliance and advancing cyber resilience.

Next, let’s talk about identity resilience. According to CrowdStrike, approximately 80% of breaches involve compromised identities. Attackers don’t start by encrypting data they compromise valid credentials and escalate privileges, putting identity at the center of cyber risk. Commvault Cloud’s growing identity resilience capabilities enable enterprises to easily track and mitigate unauthorized or accidental changes to identity. Systems like Active Directory, Enter ID and Okta. As Eric Baer of Jazzware as a Berkshire Hathaway company explained, Commvault innovation with identity resilience will allow us to detect and rollback malicious identity changes as they happen so that we can maintain reliable authentication and access control while strengthening our overall cyber resilience.

In Q3, hundreds of customers embraced our identity resilience capabilities and ARR from just our active Directory offering has more than doubled year over year. In just two years it has become one of our largest SaaS offerings and finally, we cannot discuss resilience operations without addressing recovery, particularly for cloud native and cloud bound enterprises. In Q3 we saw accelerated momentum with our cloud native offerings including Glumio. For example, Clarity, a pioneer in AI driven predictive health, chose Glumio to safeguard its sensitive AI data that fuels next generation risk prediction models. Our ongoing innovation with Plumio also speaks to our long standing collaboration with Amazon web services.

In Q3 we achieved AWS resilience competency in the recovery category and we were named the 2025 AWS Global Storage Partner of the Year. Additionally, GigaOM named Commvault a leader in its Cloud Data Protection Radar. Commvault Cloud also supports recovery of massive AI workloads and pipelines like object stores, Data lakes, analytics platform and vector databases. In Q3, we announced a new partnership with Pinecone that will bring greater resilience to the vector databases within enterprise AI stacks delivered via commvault Cloud. The solution will support Pinecone deployments across aws, Azure and Google Cloud. It’s targeted for general availability in Q2 of calendar 2026.

We believe that AI is an emerging tailwind for us. It dramatically increases the volume of data that needs to be protected, introduces new threats that need to be addressed, and requires a solution that brings resilience to the services, models and databases that power AI. Our combo Cloud Unity platform is ideally suited to help customers address these evolving AI requirements. I’d be remiss if I didn’t discuss our focus on data and cloud sovereignty. Over the years, we’ve always met our customers evolving needs, including the data sovereignty requirements. Now we’re taking it a step further by supporting regional sovereign clouds.

In December, we announced that Commvault is a launch partner for the AWS European Sovereign Cloud. Together our plans are to provide European organizations with a secure solution that is purpose built for cloud, delivering cost optimized resilience at scale for AWS customers. We are working closely with other partners on cloud sovereignty as well. This is an emerging space and we’ll have more to say about this soon. Let me close with this. This quarter we continue to capitalize on strong market growth through innovation, leadership and execution excellence, and we’re seeing record customer engagement and adoption. We believe Combo Cloud Unity is the breakthrough platform customers need in the AI.

Era and we anticipate we will finish. The year with solid results that reflect both our leadership in the market and the trust our customers place at Comv. Thank you. Now I’ll turn it over to our Chief Accounting Officer, Daniel Abrahamson to discuss the financial details. Danielle?

Danielle Abrahamson — Chief Accounting Officer

Thanks Sanjay and good morning everyone. As Sanjay highlighted, Our Q3 results reflect the growing demand for our Commvault Cloud Platform as customers continue to rely on us to keep them resilient in the face of attacks while advancing their hybrid cloud and AI journey. I’ll recap our Q3 results and operating metrics, followed by an update on Q4 and fiscal 26 guidance. As a reminder, all growth rates are on a year over year basis unless otherwise noted. For Q3 total revenue growth accelerated 19% to $314 million, driven by a 30% increase in subscription revenue which reached $206 million.

Subscription revenue was led by a robust 44% increase in SaaS revenue and 1 of our strongest customer acquisition quarters in years. Term software revenue grew a healthy 22% to $119 million. We saw strong growth across all geographies and customer sizes, with notable strength from large enterprise accounts. Revenue from term software transactions over $100,000 rose 25%, driven by notable gains in both transaction volume and average deal size. Additionally, the volume and dollar value of million dollar software deals increased year over year, underscoring our standing as the preferred vendor for enterprise customers. We added approximately 700 new subscription customers and we ended the quarter with over 14,000 subscription customers.

Q3 was our best quarter ever for net new term software customer additions and our second best ever SaaS customer acquisition quarter. Now I’ll discuss ARR subscription ARR, which we believe is the best indicator of the company’s health and growth and increased 28% to $941 million. This was driven by 40% growth in SaaS ARR to $364 million. Subscription ARR now represents 87% of total ARR compared to 83% one year ago. Total ARR increased by 22% to $1.085 billion. Existing customer expansion was healthy in Q3 with SaaS net dollar retention of one hundred and twenty one percent consistent with best in class SaaS platforms.

Our SaaS net dollar retention reflects a few things 1 a growing install base which is now over 9,000 customers 2 the impact of rapidly adding new SaaS customers which is forward looking and not yet reflected in our net dollar retention and three a mix shift of some product capabilities with certain early adopter customers. We saw solid momentum across our identity and resilience offerings which collectively represented approximately 30% of net new ARR. Now I’ll discuss our profitability and free cash flow. Fiscal Q3 gross margins improved 100 basis points sequentially to 81.5% which reflects a higher mix of software sales.

In addition, we saw improved economies of scale and product efficiencies that we expect to continue in Q4 operating expenses of $193 million represented 62% of total revenue. Operating expenses reflect higher commission and bonuses on strong year to date sales performance and the trailing run rate of initiatives to support our ongoing growth trajectory. Non GAAP EBIT was $61 million reflecting in a margin of 19.6%. In fiscal Q3 we achieved the rule of 40 reflecting a healthy balance between revenue and profitability. Year to date we’re operating at a rule of 41 consistent with our responsible growth philosophy.

In line with this approach, at the end of Q3 we initiated a cost optimization program aimed to align our cost structure to the evolving needs of the business. Turning to key balance sheet and cash flow indicators, we repurchased $41 million of stock during the quarter, bringing the year to date amount to $187 million. We ended the quarter with a diluted share count of approximately 45 million shares. Year to date, we have generated $105 million of free cash flow. Q3 free cash flow of $2 million was impacted by the timing of collections from sales made later in the quarter and an additional payroll cycle for both the US and Canada.

We expect this to normalize in Q4. Now I’ll discuss our outlook for Q4 and our updated outlook for fiscal year 26. For fiscal Q4 26, we expect subscription revenue, which includes both the software portion of term based licenses and SAs, to be in the range of 203 to 207 million dollars. This represents 18% growth. At the midpoint. We expect total revenue to be in the range of $305 to $308 million with growth of 11% at the midpoint. As a reminder, Q4 fiscal year 25 benefited from several multi year strategic land transactions. At these revenue levels, we expect Q4 consolidated gross margin to be approximately 81%.

We expect Q4 non GAAP EBIT margins of approximately 19%. Now I’ll discuss our updated fiscal year 2026 guidance. As a reminder, ARR guidance is in constant currency using FX rates as of March 31, 2025. For a historical comparison, please refer to our Q3 earnings presentation. We expect constant currency fiscal 26 total ARR growth to be approximately 18%, driven by an estimated 24% growth in subscription ARR. This guidance reflects the flow through of our Q3 results and is within our prior range. From a full year fiscal 26 revenue perspective, we are raising subscription revenue to be in the range of 764 to $768 million, growing 30% at the midpoint.

We are also increasing total revenue to a range of 1.177 billion to $1.18 billion, representing growth of 18% at the midpoint. Moving to our full year fiscal 26 margin EBIT and Free cash Flow outlook, we now expect gross margins to be 81 to 81.5%. This increased range reflects continued growth in our SaaS platform and we are increasing our non GAAP EBIT margin guidance to a range of 19 to 20%. We now expect our full year free cash flow outlook to range from 215 to 220 million dollars. This guidance reflects approximately 12 to 15 million dollars in one time payments related to our cost optimization program.

Finally, from a capital allocation perspective, our Board of Directors approved recommitting our share repurchase authorization back to $250 million. Share repurchases remain an important part of our capital allocation philosophy and we intend to remain active and opportunistic in the market. To summarize, the scale and product initiatives we undertook over the last 18 months have contributed to our improved momentum and and positioned us as the cyber resilience provider of choice for large enterprises. Commvault Cloud Unity further extends our innovation leadership and we are excited to capitalize on the strong customer reception to our enhanced platform in fiscal 27 and beyond.

Now I will turn it back to the operator to open the line for questions. Operator.

Questions and Answers:

operator

At this time I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of Aaron Rikers of Wells Fargo. Your line is now open. Please go ahead.

Aaron Rakers

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

Danielle Abrahamson

Yeah. Hey Erin, this is Danielle. Good to talk to you again. So I know I talked about this in my prepared remarks and you, you kind of hit on it. Right. But one of the things we saw this quarter and it’s not uncommon in Q3, I’ll be honest, Q3 has a tendency to be one of our most pressured free cash flow quarters. And it’s really just because the way the sales cycles work with the calendar year end, we have a tendency to see more deals close in the last few weeks of the quarter. And this quarter was no exception to that.

I can tell you over 60% of our deals actually closed in the last few weeks of the quarter. And so what you see in free cash flow is really the reflection of that. The other thing I’ll call out is we had an additional payroll cycle for both the US and Canada that’s not normal for us in a quarter and obviously the US is one of our largest payrolls. Right. So both of those things are putting pressure on free cash flow. I do want to highlight free cash flow guidance for the year. If you normalize for the one time payments that we’re making in Q4 tied to the cost optimization program remains unchanged.

Aaron Rakers

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

Danielle Abrahamson

Yeah, no, thanks for the question again. We’re not going to talk about next year right now. We will obviously alongside the new CFO conversations, we will talk about what we’re thinking for next fiscal year at a later time.

Sanjay Mirchandani

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

Aaron Rakers

Thank you, Sanjay.

Sanjay Mirchandani

Thanks.

operator

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

Jason Ader

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

Danielle Abrahamson

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

Jason Ader

Well, you gave guidance on a reported basis. Right. I just wanted to know.

Danielle Abrahamson

You’re talking about for revenue? And ARR both. Yeah.

Jason Ader

So we gave currency in line with your expectations.

Danielle Abrahamson

Yeah. So on a reported basis for revenue, currency was in line with our expectation. From an ARR perspective, we actually give. We don’t give. We only give annual guidance on ARR. And we do that on a constant currency basis.

Jason Ader

Okay, I gotcha. All right. And then the net new ARR, I think constant currency was for total net new AR was 39 million. I believe on the last earnings call, you guys talked about mid-40s. So just wanted to understand, was that below what your expectations were and if so, why?

Danielle Abrahamson

Yeah, so let me unpack that a little bit. Right. So as we mentioned on the call, we had a really strong new customer quarter. It was actually our top term software new customer quarter and our second highest customer acquisition quarter for SAS. For SAS in particular, I will tell you, 70% of our net new ARR was driven by SAS. As a reminder, we land those customers at lower ASPs, on average, typically two to three times what we would land a software customer with. And so what you’re seeing in the ARR is just a reflection of that math.

We’re still very happy about that because what that does is give us the opportunity to go out, cross sell, and gain further value with those customers. The other comment I’ll make is going back to the software LAN piece, we have a tendency to land those customers at a longer duration. So that does have some. Some modest dilution on ARR.

Jason Ader

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

Sanjay Mirchandani

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

Danielle Abrahamson

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

Jason Ader

Gotcha. Okay, so the explanation, if I can summarize, is just you’re seeing a bigger shift to SaaS than maybe you expected at the beginning when you gave the guidance. And that had an impact on the number.

Danielle Abrahamson

Yes, correct.

Sanjay Mirchandani

And larger software deals as well.

Danielle Abrahamson

Land software deals with longer durations. Yes.

Jason Ader

Thank you.

Sanjay Mirchandani

Thank you.

operator

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

James Fish

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

Sanjay Mirchandani

Okay, Jim, it’s Sanjay. So we announced it in November, so it’s what, shy of three months ago? And what Unity really does, if I could just reiterate, is it brings together workloads, data, wherever they live under one control plane.

So we’re giving customers the ability to manage anything in what we call in the AI era under one control plane. And that is something that we see as being the future. Now what we do is we also, as you know, cater to customers with large on premise software and growing SaaS capabilities. And that is their decision on how they wish to implement and the journey they take so they work in tandem. So at this point, we’re not committing to change the model unilaterally in any way next fiscal year. It’s a natural thing. We’ll meet customers where they are and what we’ve really done is take away any kind of complexity a customer may face in the journey to the hybrid and Multi cloud and really make it seamless.

Danielle Abrahamson

And Jim, I can take the second part of your question. So as it relates to our SaaS NRR, and I talked a little bit about this in my prepared remarks, but let me double click into it. Right. So a couple things went into our SaaS NRR this quarter. So the first thing, and you kind of, you know, you briefed this on your question, right. Is that we’re dealing with a much larger customer base. So our SaaS customer base is now exceeding 9,000 total customers. So from an absolute dollar perspective, right. Adding those same numbers of dollars, you’re not getting the same level of uplift that you have.

The second thing, and again, you’ll hear this, right, It’s a theme. This quarter, we had such a strong new SaaS customer quarter. Obviously, those dollars don’t show up in our NRR number yet. And I’ll remind you, right, we have one sales force that’s doing both. Right. So that’s number two. The last thing I will call out is there was a modest mix shift in some of our product capabilities among certain early adopter customers. We have the benefit of having customers adopt our different innovation early, but with that, we also deal with changes that need to happen over time.

That’s the beauty of what we offer customers. And what Sanjay was describing with the Unity platform that we’ll be able to take to a different level next year. But we, you know, these customers are still our customers. We’re not seeing uptick churn. This is really just, you know, our business going through natural maturity.

Sanjay Mirchandani

There’s no, there’s no churn impact here. Any unusual. That’s important.

James Fish

Got it. If I could follow up on that. 9,000 SaaS. As my question here, you have over 9,000 SaaS customers, 14,000 total subscription customers, plus where does SaaS penetration get to? And how much are standalone SaaS customers?

Danielle Abrahamson

Yep. So I think we’ve said before. But of those over 9,000, roughly 30% of them also have software tied to them.

Sanjay Mirchandani

On a growing base.

Danielle Abrahamson

Yeah, on the growing base.

Sanjay Mirchandani

One that I look at closely also is that nearly 50% of our enterprise SaaS customers use more than one offering. Okay. That’s up 8, 9 points from last year. So that also shows you that as the hybrid journey becomes real for our customers, the advantage of our platform becomes apparent, especially in the larger, complicated enterprise journeys, hybrid cloud journeys.

Mike Melnick

We’ll go to the next question. Bella, thank you.

operator

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

Eric Heath

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

Sanjay Mirchandani

We do our comp plans on an annual basis, Eric, and so there’s been no mid quarter or mid year change that.

It’s just between the fact that what we’re delivering to our customers in SaaS as part of the platform in conjunction with with our software capabilities is what they need and so we’re seeing a healthy pickup there. And also the work we’re doing with our ecosystem partners is also making it easy for customers to get access to and use it. So I think the product stands on its own, the SaaS capabilities stand on its own.

Eric Heath

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

Sanjay Mirchandani

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

operator

Your next question comes from the line. Yes, your next question comes from the line of Howard, please go ahead.

Howard Ma

Thanks. I want to follow on this constant currency net new ARR threads. These are the 39 in the quarter. So just given Sanjay and Danielle, given your comments earlier net adds were strong. I think we have more clarity on the SaaS NRR decline. But on the term side, the term net new ARR was I think was about 17 million. So it seems like maybe there was a shortfall in term net new ARR and last quarter average duration compressed this quarter average duration, it seemed like it upside a little bit. So I’m deducing that maybe its average term expansion ARR was in aggregate and I understand that there were some large Multi year deals.

But maybe the expansion was a little weaker than expected. And really more importantly, how should we think about it? Is 17 kind of a baseline going forward? What gives you confidence, especially in light of unity coming out, that you can sustain this level of term expansion?

Danielle Abrahamson

And I’m sorry, Howard, I want to make sure I understand the question. You’re suggesting that the net new ARR. For subscription was 17. I’m just trying to understand where I’m getting. Where you’re getting the 17 from.

Howard Ma

Yeah, maybe I look, maybe my number is incorrect, but whatever that number was, I’m seeing 18. So I guess on a constant currency basis, is that correct? That term constant currency net new ARR was 18 and that average expansion was maybe weaker than you expected. And what to think going forward?

Danielle Abrahamson

Oh, I understand what you’re saying. So you’re just looking at the term software piece. So this isn’t about expansion. I’m going to. Right. I talked about this before, but maybe. Let me make sure I’m clear on this. What we saw this quarter is land customers. And again we had our strongest land term software customer quarter. We saw land customers come in at much longer durations. Now them coming at a longer duration is part of the business. We’ve talked about this historically too actually. I think if you look at Q4 of last year, we had kind of a similar type pattern here.

But that’s really what’s driving that change. I mentioned already, the SAS, the growth in the new SaaS customers. I also want to highlight our subscription ARR. If you look at it, it’s actually our second best subscription ARR net new ad that we’ve had in the history of the company. Organic, right? You’ve got to look organic. So again I talked about the pieces with the new customers, but overall we’re really happy with where we’re at and where we’ll be for the year.

Sanjay Mirchandani

And we could follow up on the one on the public callbacks.

Howard Ma

Okay, thanks. Maybe just a quick follow up for you, Sanjay. The restructuring efforts that where I should say the incremental restructuring efforts, it seems to be entirely focused in your R and D org and perhaps operations. So R and D and operations. So number one, is that true and what gives you confidence that these cutbacks won’t impact your growth prospects?

Sanjay Mirchandani

Howard, I’m not sure where you’re getting that from. No, we time and time again as part of our regular process, as we get closer to the fiscal year and we look at what our priorities for the next year are and align our P And l to prioritize what we think is going to be part of the future this quarter. This exercise was no exception. Now, without getting into too much of the details, some of it is recurring, some of it is not recurring. We ran a voluntary retirement program that was well received. So it wasn’t on one group or another.

It was something we offered up to the whole company. And some of the savings you saw on the EBIT line this quarter and beyond, and then others are going to be put back into the business where we need it.

Howard Ma

You know, just because I got it from. In your. In the press release it says business. Technology is the unit. So can you just expand on what does business technology that function entail?

Danielle Abrahamson

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

Sanjay Mirchandani

Yeah. And Howard, actually to be more direct, what this does is strengthen where we want to go, not weaken. So we’re not cutting back on R and D or any such thing. This is really about strengthening where we think the opportunity lies. So just aligning the business, it’s a good thing.

Howard Ma

Okay. Thank you for clarifying.

Sanjay Mirchandani

No worries.

Danielle Abrahamson

Absolutely. Thanks. Howard.

operator

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

Param Singh

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

Danielle Abrahamson

Hi Param. So I’m going to. I Think I understand your question, so I’m going to answer it. But if I’m not answering what you’re asking, please feel free to clarify. Right, so, yes. So we land these customers at lower ASPs as I talked about historically, and I think we’ve said this historically, we land at roughly $40,000. That’s our ASP for these customers. Right now we see anywhere from 30 to 40% depending on the quarter of our customers that cross sell. I will tell you actually we’re seeing even better traction in our enterprise customers. Our enterprise customers, we are approaching 50% of them having more than one SaaS product.

That’s up 700 basis points from a year ago. Without giving you specific guidance for next year, what I can tell you is we have a history of growing the lifetime value of these customers and we aspire to continue to do that.

Sanjay Mirchandani

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

Param Singh

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

Danielle Abrahamson

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

Param Singh

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

Sanjay Mirchandani

We have conceptualized many things around that platform. We’re very excited about it. Param, as you can imagine, at shift you saw how much we shared the platform is just literally. We announced it in November. Most of it was broadly available end of the year. We’re in the early days of it. The pipeline looks great. The feedback from industry I shared some on my prepared comments is very positive. And it’s early days to put out any pattern matching on it. But everything in the product, especially around its AI capabilities and our ability to bring together data, security, identity, resilience and true recovery is second to none.

Our goal when we built and designed this product was to make it super easy for customers to embrace logical extensions of their resilience capabilities. So translated into a go to market piece, cross sell becomes friction free.

Param Singh

Okay, and do you feel you need to update your sales team a little bit to pivot to some of these expanding capabilities or do you feel they just delivered?

Sanjay Mirchandani

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

Param Singh

Okay, I’ll get back in line. Thank you so much for asking my questions today.

operator

Thanks. Param. Your next question comes from the line of Rudy Kissinger with DA Davidson. Please go ahead.

Rudy Kessinger

Hey guys, thanks for taking my question. So, on the net new arrangement. You know, last quarter you said you expected 60% of net new ARR to come from SaaS and 60% of 45 million would be 27 million. And you did 27.1 million of SaaS net new ARR in Q3. And so from that lens it would look like SAS net new ARR is kind of in line with expectations. And then back to Howard’s point, it would thus look like term license. Net new ARR was below expectations or the primary reason for the 6 million delta versus the 45 million kind of baseline that was expected.

So could you just again follow up on maybe the term net new ARR, was that below expectations? What was the impact of maybe longer duration on some deals than expected that resulted in some price compression, thus ARR compression? I’m just not understanding how based on these numbers, term was not below expectations.

Danielle Abrahamson

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

Sanjay Mirchandani

And Rudy, I’ve shared this over repeatedly. We have to look at this on a broader term basis, quarter to quarter, because of the type of business we do, the kinds of customers we cater to, the complexity of the projects that they embark upon, the mix of software versus SaaS, there will be a little bit of variability in how this stuff gets lands. The good news is we’re adding a ton of new customers in SaaS which bodes well for the long term. And we had a record, absolute record quarter of software LAN customers with longer durations.

So yes, the numbers are off a little bit but we need to expect a little bit of variability in this over time because this is an annualized thing. Now if you look at overall ARR for the year, we’re talking 22% rough, tough growth on a $167 million year on year increase. So it’s actually very handsome. I just feel like there will be a little bit of quarter to quarter variability because we sell hybrid solutions for customers and they have the option of being able to deploy it in the manner in which they want. So, you know, I guess we could have done a better job explaining that last quarter.

It comes back to the term and that stuff, but I’ll keep explaining it until we get it right.

Danielle Abrahamson

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

Rudy Kessinger

Okay. And then as a follow up, I’m curious, there was some commentary about, you know, you sold maybe more SaaS deals than I seem to maybe interpret that as meaning that prohibited you from also selling some term deals. So I guess I’m curious, like in your pipe for the quarter, did you have a lot of customers where reps were working with them on both potential SaaS and term deals and more of the land tilted towards SaaS than term in the quarter? And then, Sorry for a 2 parter here, but on your SaaS arrangement, what percentage of your SaaS ARR comes from or is calculated from consumption in the current quarter times 4 versus TCV over duration.

And I’m curious if you were to, you know, look at the quarter, your SAS on an ACV bookings, you know, standpoint relative as opposed to ARR, how much stronger might that number have been if you were calculating all of your SaaS ARR as TCV over duration?

Sanjay Mirchandani

That’s a tough question. Maybe give us a little time to give you the exact number on that. But let me take the first part of your question. Our sales team, the reason we have our go to market team the way it is is because our platform delivers two sets of capabilities. So you can’t segment them and say do this versus that or that versus that. It really depends on where the customer is and how we meet them where they are. So if a customer wants to start with air gap protect and clean room and Then move backwards into our on premise capabilities.

That’s what we’ll do. So the sales team is absolutely aligned to the customer buying model and their buying capabilities and their needs. So we internally don’t trade off one license type versus another. That’s not ever what we do. It’s what the customer needs and how we best align to it. Could you repeat the second part of your question? The second part of a question I.

Rudy Kessinger

Get like if I just take your 364 million of SaaS AR, how much of that is calculated from like flumio products that are just consumption times 4 versus how much is just TCV over duration? The same way you calculate your term license ARR. Because I’m trying to, you know, you’re talking about the ASPS being much lower and the bar not necessarily showing up yet from some strong bookings. And so I’m trying to understand how much of Your net new SaaS bookings come from products that are going to have ARR calculated on a consumption basis as opposed to TCV over duration.

Danielle Abrahamson

Yeah, so I’m not going to give the exact breakout. Rudy. What I can tell you though is it’s small, it’s immaterial on the whole ARR number. So you’re not, it’s not overly meaningful in the percentage.

Rudy Kessinger

Okay, that’s helpful. Thank you.

Danielle Abrahamson

Thanks Rudy.

operator

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

Michael Romanelli

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

Sanjay Mirchandani

What was the second part? Sorry, Michael.

Michael Romanelli

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

Sanjay Mirchandani

Yeah, actually as a quarter is very evenly distributed and almost by design, you know, over time we’ve worked to de risk the business in both geography as well as in particular verticals. This quarter was our international business did very well, as did our US business was very, very. Even our SaaS business did well, our software business did well. So there was no particular call out. I think overall a well delivered quarter from my point of view.

Michael Romanelli

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

Danielle Abrahamson

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

Michael Romanelli

Got it. Okay. All right. That’s helpful. Thanks.

operator

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

Thomas Blakey

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

Danielle Abrahamson

Yeah. So we’re continuing to assume that duration remains specifically. And Sanjay called this out in his earlier remarks. Right. Median duration will remain in normal range. So that’s what we’re assuming in our guide.

Thomas Blakey

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

Danielle Abrahamson

No, no. Yeah. I would say again that the duration median will remain the same. And the guide is neither aggressive nor conservative. Right. We wanted to give you where we feel like we can meet.

Sanjay Mirchandani

And frankly, we’re getting better at this as customers deploy more complex scenarios. We have to internally be spending a lot of time really financing how we. How we look at this, and we’ll be completely transparent about that.

Thomas Blakey

Yeah. No, you have always. Sanjay, I just said duration was an impact to ARR this quarter. So I was just trying to understand.

Sanjay Mirchandani

I know, because it’s a tale of two cities right here. We get larger duration, more land deals, and it affects the other side. And then we get a lot of new SaaS deals and smaller duration. And so a little bit of variability is to be expected. We’re getting better, I hope, at being able to tell you what that is.

Thomas Blakey

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

Thank you so much.

Sanjay Mirchandani

No worries. No worries. So, you know, so hybrid deals, if you start on the software side, you look at large enterprise customers and they have technology that goes back to the legacy technology. The process of getting that conversation going, where it becomes A combination now in resilience terms of really looking at data security of all data types, looking at identity resilience and then attaching that to world class recovery, that becomes a fairly sophisticated conversation. And that takes time. And when we get into it then you realize that some of the workloads, they want to start the cloud, they want to keep on premise, they have a timeline under which to move it to the cloud.

So then you start working through that. And we’ve gotten good at it because we’ve been doing this now, the cyber resilience conversation, security conversation for a couple of years. We think the new platform and the bringing together of the capabilities under one pane of glass will just allow customers, especially with our discovery capabilities, to quickly get up and understand what they have and what is protected, what isn’t, at what level, what policy. So I think the new platform in time will help shrink our ability and the customer’s decision points. I think to do things now the sales force is taking this to market.

Comprehensively. We try not to go and talk about workloads because that’s not a resilient solution. Resilience, in my simple way of thinking about it is only as good as the entirety of the workloads you protect. And so that’s kind of how we look at it. These deals, when you start can. It’s a very sophisticated sales process and you have to. Customers are open to it. Cyber threats aren’t going down. AI in a good way generates more data and that data needs to be protected and we’re good at that. Okay, so that’s kind of how we think about.

Go ahead.

Thomas Blakey

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

Sanjay Mirchandani

So I was going to. You know, I think that firstly you said discounting earlier in your earlier part of your question. There is no. We keep a very tight control on that. You know, our chief commercial officer was our chief financial officer. So there’s a very high degree of discipline that goes into discounting inside of a company so that I don’t worry about day in and day out. That’s not my concern at all. The sales cycle we believe, and it’s early days so we could talk about it over the quarters to come. We believe that our commvault Cloud Unity platform will reduce the time it takes for customers to understand resilience the way we’ve designed it and get up and running with us faster.

And then we also released a framework for them to sort of look at, to operationalize it. We call that Res Ops. We released that. We announced that in tandem with the platform and the collective capabilities in there, we think will allow our team, our partners and our customers, our prospects in this case, to truly understand how fast they can get up and running with true resilience. So I’m very hopeful about where the platform is.

Thomas Blakey

Thank you very much, Sanjay.

Sanjay Mirchandani

Thank you.

operator

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

Shrenik Kothari

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

Danielle Abrahamson

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

But if I’m missing it, let me know.

Shrenik Kothari

No, no, that was it. Yeah, thanks. Yeah.

Danielle Abrahamson

Okay, perfect.

Sanjay Mirchandani

It’s all future value. Future value, lifetime value of the customer.

Shrenik Kothari

Yeah, got it. And Sanjay, so my follow up then is of course you have the SaaS error recognition due to this kind of ramps. And I was just curious would in that case, kind of a SaaS ACV bookings offer like a much cleaner, better lens into your Truman. I think you were getting to that and with UNITY gaining traction, should help improve your overall DCV and error dynamics. Just curious. And also net new era coming from SaaS. Just has there been any internal discussion around looking at some of those metrics kind of ACV or backlog rpo.

Yeah.

Danielle Abrahamson

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

Shrenik Kothari

That’s clear. Thanks.

operator

Your last question comes from the line of Janai Jasidiq with Truist. Please go ahead.

Junaid Siddiqui

Great. Good morning and thank you for taking my question. I just wanted to ask about Satori. Sanjay, I know it’s in the early days, but could you just discuss how Satori is influencing customer adoption and deal sizes in these ransomware driven evaluations and what specific capabilities within Satori are proving most differentiating in these competitive wins and how do you think about its contribution to growth over the next say, 12, 18 months?

Sanjay Mirchandani

Okay, sounds good. So where we are with Satori is we’re in the throes of integrating the product into our platform. And when we acquired Satori, we were, I think very clear that this would not be a standalone capability, but the value, the true value of Satori was giving our customers the ability to inspect and look at their data, structured, unstructured and really have a policy related compliance capability. So that was the premise that work. We are in the throes of incorporating into the platform. Our belief is the customers need that capability as part of the platform, unlike some others in the business because standalone is another integration point and with us it’s a feature you just turn on and then you are protected and you’re looking at the compliance requirements and policies across the board.

So it’s an implicit part of the platform. We believe that the value comes for customers being better protected out of the box without having to do more in field integrations with third party products. And we think that’s going to raise the value and it is already raising the value in conversations that we’re having. So it’s early days but, but kind of where we expected it to be.

Junaid Siddiqui

Great. Thank you.

Sanjay Mirchandani

Thank you.

operator

All right, there are no questions at this time, ladies and gentlemen. That does conclude our conference call for today. Thank you all for joining and you may now disconnect. Everyone have a great day.