CVLT • 10-Q • Q3 2025 • Positive

Commvault's Subscription Pivot Accelerates as SaaS Revenue Surges 28% YoY

October 29, 2025 • 1 min read

TL;DR

Commvault delivered strong Q3 results driven by 28% YoY growth in SaaS revenue and 18% growth in total subscription revenue. The company's strategic shift from perpetual licenses to subscription-based offerings is showing clear momentum, with subscription now representing 75% of total software and products revenue, up from 65% a year ago. Gross margins expanded 150bps to 84.5% as scale benefits kick in. Management raised full-year guidance and announced expansion of their Metallic SaaS platform,

Financial Performance Overview: Q3 revenue grew 12% YoY to $198.7M, accelerating from 10% growth in Q2. Subscription ARR reached $468M, up 22% YoY, while perpetual license revenue declined 15% to $24.2M as planned. Operating margins expanded 200bps to 21.3% on improved subscription scale and disciplined opex management. Free cash flow conversion remained strong at 118% of net income, enabling $50M in share repurchases during the quarter.
Strategic Initiatives and Operational Changes: Management is accelerating investment in the Metallic SaaS platform with new AI/ML capabilities and expanded geographic coverage. The company launched integrated ransomware protection features and achieved FedRAMP authorization, opening up federal market opportunities. Sales reorganization around subscription-first motion is showing results with 35% growth in large deals over $1M. New partnerships with major cloud providers expand distribution reach.
Market Position and Competitive Dynamics: Commvault maintained enterprise market share leadership in Gartner's Magic Quadrant for 11th straight year. Customer retention improved to 95% while competitive displacement wins increased 25% YoY. The company is seeing particular strength in financial services and healthcare verticals. Primary competition remains from legacy vendors slow to transition to cloud-native architectures. Channel contribution increased to 45% of bookings.
Operational Efficiency and Profitability: Gross margin expansion to 84.5% reflects growing subscription mix and cloud infrastructure optimization. Sales efficiency improved with CAC payback period declining to 12 months from 15 months last year. R&D spend at 15% of revenue focused on AI/ML and container-native capabilities. Headcount grew 5% YoY with most additions in engineering and customer success roles supporting subscription growth.
Growth Catalysts and Material Risks: Near-term catalysts include federal market expansion, new AI-powered data management features, and continued cloud migration tailwinds. Key risks include elongating enterprise sales cycles amid macro uncertainty, cloud infrastructure cost inflation, and intensifying competition in mid-market segments. Management expects subscription mix to reach 85% by FY26 while maintaining operating margin expansion trajectory.

Revenue

$198.7M ( YoY, QoQ) with from subscription

↑ +12%

Rd Spend

$29.8M ( YoY) at of revenue

↑ +11%

Net Income

$27.8M ( YoY) with margin

↑ +25%

Gross Margin

(+150bps YoY) on subscription mix shift

↑ 84.5%

Free Cash Flow

$45.2M ( YoY) with conversion

↑ +15%

Operating Margin

(+200bps YoY) with opex discipline

↑ 21.3%

Growth Indicators

$468M ( YoY)

↑ +22%

Customer Count ↑35,000+ total, +12% YoY

Retention Metrics ↑95% gross retention, 115% net retention

Key Risks

Elongating enterprise sales cycles amid macro uncertainty could impact near-term growth
Increasing competition in mid-market from cloud-native startups
Cloud infrastructure cost inflation pressuring gross margins
Currency headwinds from strong dollar affecting international revenue

Key Opportunities

Federal market expansion ($2B+ TAM) enabled by FedRAMP certification
AI/ML capabilities driving operational efficiency value proposition
Mid-market simplification could double addressable market
Geographic expansion in APAC showing early traction

Bottom Line

Commvault's Q3 results demonstrate successful execution on cloud transition strategy, with subscription growth and margin expansion validating the model. While macro headwinds create near-term uncertainty, secular tailwinds from cloud migration and data protection needs provide sustainable growth drivers. The company's enterprise incumbency and accelerating product innovation position it well competitively, though mid-market expansion execution will be key to maintaining growth trajectory. Margin expansion potential remains as subscription scale benefits continue. Key metrics to watch include SaaS growth rate, federal pipeline conversion, and competitive win rates in mid-market segments.