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~~June 30, ~~2021~~2022

☐ 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~~Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by ~~the~~ 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~~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.)~~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 ~~definition~~the definitions of “large accelerated filer”, "accelerated filer", "smaller reporting company" and "emerging growth company" in ~~rule~~Rule 12b-2 of the Exchange Act. (Check one):

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~~July 25, ~~2021,~~2022, there were ~~45,508,675~~44,806,580 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 ~~and Notes~~
	Unaudited Consolidated Balance Sheets as of ~~September~~ June 30, ~~2021~~2022 and March 31, ~~2021~~2022	1
	Unaudited Consolidated Statements of Operations for the three ~~and s~~ix months ended ~~September~~ June 30, ~~2021~~2022 and ~~2020~~2021	2
	Unaudited Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three ~~and six~~ months ended ~~September~~ June 30, ~~2021~~2022 and ~~2020~~2021	3
	Unaudited Consolidated Statements of Stockholders’ Equity for the three ~~and six~~ months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	4
	Unaudited Consolidated Statements of Cash Flows for the ~~six~~ three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	65
	Notes to Consolidated Financial Statements (unaudited)	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1714
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2821
Item 4.	Controls and Procedures	2822

Part II – OTHER INFORMATION
Item 1.	Legal Proceedings	3023
Item 1A.	Risk Factors	3023
Item 2.	Unregistered ~~Sale~~Sales of Equity Securities and Use of Proceeds	3023
Item 3.	Defaults Upon Senior Securities	3023
Item 4.	Mine Safety Disclosures	3023
Item 5.	Other Information	3023
Item 6.	Exhibits	3124

SIGNATURES		3225

Commvault Systems, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)


		September 30, 2021		March 31, 2021			June 30, 2022		March 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	295,807	$	397,237	Cash and cash equivalents	$	258,713	$	267,507

Trade accounts receivable, net	Trade accounts receivable, net	166,272		188,126		Trade accounts receivable, net	181,535		194,238
Other current assets	Other current assets	20,651		22,237		Other current assets	24,785		22,336
Total current assets	Total current assets	482,730		607,600		Total current assets	465,033		484,081

Property and equipment, net	Property and equipment, net	109,557		112,779		Property and equipment, net	104,599		106,513
Operating lease assets	Operating lease assets	17,925		20,778		Operating lease assets	13,136		14,921
Deferred commissions cost	Deferred commissions cost	42,351		38,444		Deferred commissions cost	52,767		52,974

Intangible asset, net						Intangible asset, net	3,229		3,542
Goodwill	Goodwill	112,435		112,435		Goodwill	127,780		127,780
Other assets	Other assets	14,756		12,137		Other assets	26,179		26,269
Total assets	Total assets	$	779,754	$	904,173	Total assets	$	792,723	$	816,080
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	178	$	374	Accounts payable	$	884	$	432
Accrued liabilities	Accrued liabilities	85,604		112,148		Accrued liabilities	86,397		121,837
Current portion of operating lease liabilities	Current portion of operating lease liabilities	6,455		7,469		Current portion of operating lease liabilities	4,113		4,778
Deferred revenue	Deferred revenue	247,578		253,211		Deferred revenue	264,527		267,017
Total current liabilities	Total current liabilities	339,815		373,202		Total current liabilities	355,921		394,064
Deferred revenue, less current portion	Deferred revenue, less current portion	124,833		119,231		Deferred revenue, less current portion	151,950		150,180
Deferred tax liabilities, net	Deferred tax liabilities, net	762		761		Deferred tax liabilities, net	799		808
Long-term operating lease liabilities	Long-term operating lease liabilities	13,009		15,419		Long-term operating lease liabilities	9,801		11,270
Other liabilities	Other liabilities	1,557		1,526		Other liabilities	3,768		3,929
Commitments and contingencies (Note 5)	Commitments and contingencies (Note 5)	0		0		Commitments and contingencies (Note 5)	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $0.01 par value: 50,000 shares authorized, no shares issued and outstanding	Preferred stock, $0.01 par value: 50,000 shares authorized, no shares issued and outstanding	—		—		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, 45,374 shares and 46,482 shares issued and outstanding at September 30, 2021 and March 31, 2021, respectively		452		463
Common stock, $0.01 par value: 250,000 shares authorized, 44,835 shares and 44,511 shares issued and outstanding at June 30, 2022 and March 31, 2022, respectively						Common stock, $0.01 par value: 250,000 shares authorized, 44,835 shares and 44,511 shares issued and outstanding at June 30, 2022 and March 31, 2022, respectively	446		443
Additional paid-in capital	Additional paid-in capital	1,119,738		1,069,695		Additional paid-in capital	1,194,931		1,165,948
Accumulated deficit	Accumulated deficit	(808,749)		(665,774)		Accumulated deficit	(911,315)		(898,699)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(11,663)		(10,350)		Accumulated other comprehensive loss	(13,578)		(11,863)
Total stockholders’ equity	Total stockholders’ equity	299,778		394,034		Total stockholders’ equity	270,484		255,829
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	779,754	$	904,173	Total liabilities and stockholders’ equity	$	792,723	$	816,080

See accompanying unaudited notes to consolidated financial statements

Commvault Systems, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended June 30,
		2021		2020		2021		2020			2022		2021
Revenues:	Revenues:									Revenues:
Software and products	Software and products	$	75,261	$	72,309	$	157,423	$	148,863	Software and products	$	92,436	$	82,162
Services	Services	102,579		98,830		203,838		195,276		Services	105,545		101,259
Total revenues	Total revenues	177,840		171,139		361,261		344,139		Total revenues	197,981		183,421
Cost of revenues:	Cost of revenues:									Cost of revenues:
Software and products	Software and products	2,894		7,903		5,200		13,750		Software and products	4,900		2,306
Services	Services	23,680		18,896		46,649		37,600		Services	28,857		22,969
Total cost of revenues	Total cost of revenues	26,574		26,799		51,849		51,350		Total cost of revenues	33,757		25,275
Gross margin	Gross margin	151,266		144,340		309,412		292,789		Gross margin	164,224		158,146
Operating expenses:	Operating expenses:									Operating expenses:
Sales and marketing	Sales and marketing	82,928		79,069		159,289		160,745		Sales and marketing	84,919		76,361
Research and development	Research and development	37,726		30,955		73,861		62,097		Research and development	40,113		36,135
General and administrative	General and administrative	25,358		24,748		51,787		46,307		General and administrative	26,976		26,429
Restructuring	Restructuring	636		5,767		2,082		8,091		Restructuring	2,132		1,446
Impairment of intangible assets		—		40,700		—		40,700

Depreciation and amortization	Depreciation and amortization	2,352		5,053		4,633		10,118		Depreciation and amortization	2,635		2,281
Total operating expenses	Total operating expenses	149,000		186,292		291,652		328,058		Total operating expenses	156,775		142,652
Income (loss) from operations		2,266		(41,952)		17,760		(35,269)
Income from operations										Income from operations	7,449		15,494
Interest income	Interest income	289		249		423		592		Interest income	261		134
Income (loss) before income taxes		2,555		(41,703)		18,183		(34,677)
Income tax expense (benefit)		824		(532)		2,555		4,211
Net income (loss)		$	1,731	$	(41,171)	$	15,628	$	(38,888)
Net income (loss) per common share:
Interest expense										Interest expense	(105)		—
Other expense, net										Other expense, net	(389)		—
Income before income taxes										Income before income taxes	7,216		15,628
Income tax expense										Income tax expense	3,705		1,731
Net income										Net income	$	3,511	$	13,897
Net income per common share:										Net income per common share:
Basic	Basic	$	0.04	$	(0.89)	$	0.34	$	(0.84)	Basic	$	0.08	$	0.30
Diluted	Diluted	$	0.04	$	(0.89)	$	0.33	$	(0.84)	Diluted	$	0.08	$	0.29
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	45,743		46,516		45,960		46,354		Basic	44,743		46,180
Diluted	Diluted	47,599		46,516		47,936		46,354		Diluted	45,865		48,167

See accompanying unaudited notes to consolidated financial statements

Commvault Systems, Inc.

Consolidated Statements of Comprehensive Income ~~(Loss)~~

(In thousands)

(Unaudited)

Three Months Ended September 30, Six Months Ended September 30,
2021 2020 2021 2020
Net income (loss) $ 1,731 $ (41,171) $ 15,628 $ (38,888)
Other comprehensive income (loss):
Foreign currency translation adjustment (722) 788 (1,313) 1,738
Comprehensive income (loss) $ 1,009 $ (40,383) $ 14,315 $ (37,150)


	Three Months Ended June 30,
	2022		2021
Net income	$	3,511	$	13,897
Other comprehensive loss:
Foreign currency translation adjustment	(1,715)		(591)
Comprehensive income	$	1,796	$	13,306

See accompanying unaudited notes to consolidated financial statements

Commvault Systems, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)


		Common Stock			Additional Paid – In Capital				Accumulated Deficit		Accumulated Other Comprehensive Loss				Total					Common Stock				Additional Paid – In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
		Shares	Amount											Shares					Amount
Balance as of June 30, 2021		46,066	$	459			$	1,095,903					$	(730,883)			$	(10,941)		$	354,538
Balance as of March 31, 2022																		Balance as of March 31, 2022		44,511		$	443		$	1,165,948		$	(898,699)		$	(11,863)		$	255,829
Stock-based compensation	Stock-based compensation				26,449										26,449			Stock-based compensation						31,095									31,095
Share issuances related to stock-based compensation	Share issuances related to stock-based compensation	467	5		7,821										7,826			Share issuances related to stock-based compensation		634		6		681									687
Repurchase of common stock	Repurchase of common stock	(1,159)	(12)		(10,435)				(79,597)						(90,044)			Repurchase of common stock		(310)		(3)		(2,793)			(16,127)						(18,923)

Net income	Net income								1,731						1,731			Net income									3,511						3,511
Other comprehensive loss	Other comprehensive loss										(722)				(722)			Other comprehensive loss												(1,715)			(1,715)
Balance as of September 30, 2021		45,374	$	452	$	1,119,738			$	(808,749)	$	(11,663)			$	299,778
Balance as of June 30, 2022																		Balance as of June 30, 2022		44,835		$	446	$	1,194,931		$	(911,315)		$	(13,578)		$	270,484

Common Stock Additional
Paid – In
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Total
Shares Amount
Balance as of March 31, 2021 46,482 $ 463 $ 1,069,695 $ (665,774) $ (10,350) $ 394,034
Stock-based compensation 48,260 48,260
Share issuances related to stock-based compensation 1,300 13 23,248 23,261
Repurchase of common stock (2,408) (24) (21,465) (158,603) (180,092)
Net income 15,628 15,628
Other comprehensive loss (1,313) (1,313)
Balance as of September 30, 2021 45,374 $ 452 $ 1,119,738 $ (808,749) $ (11,663) $ 299,778


	Common Stock			Additional Paid – In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of March 31, 2021	46,482	$	463	$	1,069,695	$	(665,774)	$	(10,350)	$	394,034
Stock-based compensation				21,811						21,811

Share issuances related to stock-based compensation	833	8		15,427						15,435
Repurchase of common stock	(1,249)	(12)		(11,030)		(79,006)				(90,048)

Net income						13,897				13,897
Other comprehensive loss								(591)		(591)
Balance as of June 30, 2021	46,066	$	459	$	1,095,903	$	(730,883)	$	(10,941)	$	354,538

~~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, 2020 46,321 $ 461 $ 997,838 $ (551,591) $ (12,473) $ 434,235
Stock-based compensation 20,584 20,584
Share issuances related to stock-based compensation 364 3 5,037 5,040
Net loss (41,171) (41,171)
Other comprehensive income 788 788
Balance as of September 30, 2020 46,685 $ 464 $ 1,023,459 $ (592,762) $ (11,685) $ 419,476

Common Stock Additional
Paid – In
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Total
Shares Amount
Balance as of March 31, 2020 46,011 $ 458 $ 978,659 $ (553,790) $ (13,423) $ 411,904
Stock-based compensation 39,535 39,535
Share issuances related to stock-based compensation 674 6 5,265 5,271
Cumulative effect change in accounting for ASU 2016-13 (84) (84)
Net loss (38,888) (38,888)
Other comprehensive income 1,738 1,738
Balance as of September 30, 2020 46,685 $ 464 $ 1,023,459 $ (592,762) $ (11,685) $ 419,476

See accompanying unaudited notes to consolidated financial statements

Commvault Systems, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


		Six Months Ended September 30,					Three Months Ended June 30,
		2021		2020			2022		2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income (loss)		$	15,628	$	(38,888)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income						Net income	$	3,511	$	13,897
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	5,258		10,743		Depreciation and amortization	2,977		2,593
Noncash stock-based compensation	Noncash stock-based compensation	48,260		39,535		Noncash stock-based compensation	31,095		21,811
Noncash change in fair value of equity securities						Noncash change in fair value of equity securities	389		—

Amortization of deferred commissions cost	Amortization of deferred commissions cost	8,650		9,526		Amortization of deferred commissions cost	5,314		4,166
Impairment of operating lease assets		—		692
Impairment of intangible assets		—		40,700

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Trade accounts receivable	Trade accounts receivable	27,519		3,637		Trade accounts receivable	9,389		34,054
Operating lease assets and liabilities, net	Operating lease assets and liabilities, net	(544)		(808)		Operating lease assets and liabilities, net	(283)		(153)
Other current assets and Other assets	Other current assets and Other assets	(4,346)		9,982		Other current assets and Other assets	(2,710)		(7,594)
Deferred commissions cost	Deferred commissions cost	(12,897)		(9,965)		Deferred commissions cost	(6,652)		(5,941)
Accounts payable	Accounts payable	(193)		(67)		Accounts payable	482		(241)
Accrued liabilities	Accrued liabilities	(25,952)		(17,151)		Accrued liabilities	(31,366)		(26,067)
Deferred revenue	Deferred revenue	1,831		(10,222)		Deferred revenue	10,258		669
Other liabilities	Other liabilities	56		4,528		Other liabilities	29		17
Net cash provided by operating activities	Net cash provided by operating activities	63,270		42,242		Net cash provided by operating activities	22,433		37,211
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities

Proceeds from maturity of short-term investments		—		32,800
Purchases of investments		(2,706)		—

Purchase of property and equipment	Purchase of property and equipment	(1,993)		(3,662)		Purchase of property and equipment	(867)		(1,442)
Net cash (used in) provided by investing activities		(4,699)		29,138
Purchase of equity securities						Purchase of equity securities	(1,015)		—

Net cash used in investing activities						Net cash used in investing activities	(1,882)		(1,442)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Repurchase of common stock	Repurchase of common stock	(180,092)		—		Repurchase of common stock	(18,923)		(90,048)
Proceeds from stock-based compensation plans	Proceeds from stock-based compensation plans	23,261		5,271		Proceeds from stock-based compensation plans	687		15,435
Payment of debt issuance costs						Payment of debt issuance costs	(63)		—

Net cash (used in) provided by financing activities		(156,831)		5,271
Net cash used in financing activities						Net cash used in financing activities	(18,299)		(74,613)
Effects of exchange rate — changes in cash	Effects of exchange rate — changes in cash	(3,170)		10,420		Effects of exchange rate — changes in cash	(11,046)		756
Net (decrease) increase in cash and cash equivalents		(101,430)		87,071
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(8,794)		(38,088)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	397,237		296,082		Cash and cash equivalents at beginning of period	267,507		397,237
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	295,807	$	383,153	Cash and cash equivalents at end of period	$	258,713	$	359,149

See accompanying unaudited notes to consolidated financial statements

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") is a provider of data protection and information management software applications and products. We develop, market and sell a suite of software applications and services, globally, that provides our customers with data protection solutions. We also provide our customers with a broad range of professional and customer support ~~services.~~services, including data management-as-a-service, branded as Metallic.

The consolidated financial statements of Commvault as of ~~September~~June 30, ~~2021~~2022 and for the three ~~and six~~ months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 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 ~~2021.~~2022. 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 ~~amount~~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, purchased intangible assets and goodwill. Actual results could differ from those estimates.

2. Summary of Significant Accounting Policies

Recently Adopted and Recently Issued Accounting Standards


~~Standard~~	~~Description~~	~~Effective Date~~	~~Effect on the Consolidated Financial Statements (or Other Significant Matters)~~
~~ASU No. 2019-12 (Topic 740), Income Taxes~~	In December 2019, the Financial Accounting Standards Board ("FASB") issued a new standard to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.	~~We adopted this standard as of April 1, 2021.~~	~~The standard did not have a significant impact on our financial statements.~~

~~Table of Contents~~

~~Commvault Systems, Inc~~

~~Notes~~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 ~~Consolidated Financial Statements - Unaudited (continued)~~

~~(In thousands, except per share data)~~

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. Credit losses relating to these customers have ~~historically~~ been minimal.

Sales through our distribution agreement with Arrow Enterprise Computing Solutions, Inc. (“Arrow”) totaled ~~34%~~36% and ~~36%~~37% of total revenues for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020, respectively. Sales with Arrow totaled 35% and 36% of total revenues for the six months ended September 30,~~ 2021, ~~and 2020,~~ respectively. Arrow accounted for approximately 25% and ~~33%~~30% of total accounts receivable as of ~~September~~June 30, ~~2021~~2022 and March 31, ~~2021,~~2022, respectively.

~~TD SYNNEX (formerly Tech Data Corporation) accounted for approximately 13% of total accounts receivable as of September 30, 2021.~~

Equity Securities Accounted for at Net Asset Value

We held an equity ~~interest~~interests in a private equity ~~fund~~funds of ~~$2.6 million~~$4,650 as of ~~September~~June 30, ~~2021,~~2022, which isare accounted for under the net asset value practical expedient as permitted under ASC 820, Fair Value Measurement. ~~This investment is~~These investments are included in ~~Other~~other assets in the accompanying ~~Consolidated Balance Sheets.~~consolidated balance sheets. The net asset ~~value~~values of ~~this investment is~~these investments are determined using quarterly capital statements from the ~~fund,~~funds, which isare based on our contributions to the ~~fund,~~funds, allocation of profit and loss and changes in fair value of the underlying fund ~~investment.~~investments. Changes in fair value as reported on the capital statements ~~will be~~are recorded through profit and loss as non-operating ~~income. This~~income or expense. These private equity ~~fund focuses~~funds focus on making investments in key technology sectors, principally by investing in companies at expansion capital and growth equity stages. We have total unfunded commitments in private equity funds of ~~$8.2 million~~$5,718 as of ~~September~~June 30, 2022. We did not own interests in any of these funds as of June 30, 2021.

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Commvault Systems, Inc

Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

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 software licenses, software updates, customer support and other services, including software-as-a-service offerings. 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 contracts for software updates and customer support 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 appliance is ~~typically~~ 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 ~~or appliance~~ sold as part of the transaction.

~~Beginning in fiscal 2022, we modified the terms of our commission plans, and as a result, the~~ The commission paid on the renewal of a term-based or subscription software license ~~was~~is not commensurate with the commission paid on the initial purchase. As a result, the cost of commissions allocated to software updates and customer support on the initial ~~transaction~~term-based software license transactions are ~~now~~ 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 software updates and support for the renewal of term-based software licenses is limited to the contractual period of the arrangement, as we ~~intend to~~ pay a commensurate renewal commission upon the next renewal of the subscription license and related updates and support. This change in commission plans also resulted in a change in the estimate of the amortization period of our existing Deferred commissions cost associated with term licenses. This change in amortization period resulted in an approximately $950 and $2,050 reduction in Sales and marketing expense, than if the change in estimate did not occur, for the three and six months ended September 30, 2021, respectively.

The costs related to professional services are amortized over the period the related professional services are provided and revenue is recognized. Amortization expense related to these costs is included in ~~Sales~~sales and marketing expenses in the accompanying ~~Consolidated Statements~~consolidated statements of ~~Operations.~~

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~~Commvault Systems, Inc~~

~~Notes to Consolidated Financial Statements - Unaudited (continued)~~

~~(In thousands, except per share data)~~

operations.

3. Revenue

We derive revenues from 2 primary sources: software and products, and services. Software and products revenue includes our software and integrated appliances that combine our software with hardware. Services include customer support (software updates and technical support), consulting, assessment and design services, installation services, customer education and Commvault software-as-a-service, which is branded as Metallic.

We sell both perpetual and term-based licenses of our software. We refer to our term-based software licenses as subscription arrangements. We do not customize our software, and installation services are not required. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that our software licenses (both perpetual and subscription) are functional intellectual property that is distinct as the user can benefit from the software on its own. Software revenue for both perpetual and subscription licenses is 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 software revenue related to the renewal of subscription software licenses earlier than the beginning of the new subscription period.

We also sell 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. Revenue related to appliances is recognized when control of the appliances passes to the customer; typically upon delivery. In the second half of fiscal 2021 we began transitioning to a software only model in which we typically sell software to a third party, which assembles an integrated appliance that is sold to end user customers. As a result, ~~we expect~~ the revenue and costs associated with hardware ~~will decline~~have declined from recent fiscal years.

Services revenue includes revenue from customer support and other professional services. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. We sell our customer support contracts as a percentage of net software purchases the support is related to. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year on our perpetual licenses. The term of our subscription arrangements is typically three years but can range between one and five years.

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Commvault Systems, Inc

Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

Our other professional services include consulting, assessment and design services, installation services and customer education. Customer education services include courses taught by our instructors or third-party contractors. Revenue related to other professional services and customer education services is typically recognized as the services are performed.

~~In fiscal 2020~~ Commvault ~~launched Metallic,~~software-as-a-service, which is ~~a Commvault software-as-a-service offering.~~branded as Metallic, allows customers to use hosted software over the contract period without taking possession of the software. Revenue ~~from~~related to Metallic is generally recognized ratably over the contract term as services revenue.

Most of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software isare typically estimated using the residual approach. Standalone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis.

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~~Commvault Systems, Inc~~

~~Notes to Consolidated Financial Statements - Unaudited (continued)~~

~~(In thousands, except per share data)~~

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
Software and Products Revenue
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
Customer Support Revenue
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 Revenue
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
Software-as-a-service (Metallic)	Ratably over the course of the contract (over time)	Annual or monthly payments	Observable in transactions without multiple performance obligations

Disaggregation of Revenue

We disaggregate revenue from contracts with customers into the nature of the products and services and geographical regions. ~~The geographic regions that are tracked are~~Beginning in fiscal 2023, we have combined the ~~Americas (United States, Canada, Latin America),~~management of our EMEA and APJ field organizations into our International region (Europe, Middle East, ~~Africa) and APJ (Australia, New Zealand,~~Africa, Australia, Japan, Southeast Asia, China). ~~We operate in 1 segment.~~Our Americas region includes the United States, Canada, and Latin America.

Three Months Ended September 30, 2021
Americas EMEA APJ Total
Software and Products Revenue $ 44,185 $ 22,280 $ 8,796 $ 75,261
Customer Support Revenue 51,207 26,288 9,958 87,453
Other Services Revenue 9,393 4,114 1,619 15,126
Total Revenue $ 104,785 $ 52,682 $ 20,373 $ 177,840


		Three Months Ended September 30, 2020									Three Months Ended June 30, 2022
		Americas		EMEA		APJ		Total			Americas		International		Total
Software and Products Revenue	Software and Products Revenue	$	39,241	$	22,063	$	11,005	$	72,309	Software and Products Revenue	$	59,680	$	32,756	$	92,436
Customer Support Revenue	Customer Support Revenue	54,177		24,911		10,359		89,447		Customer Support Revenue	48,031		33,286		81,317
Other Services Revenue	Other Services Revenue	4,794		3,084		1,505		9,383		Other Services Revenue	14,898		9,330		24,228
Total Revenue	Total Revenue	$	98,212	$	50,058	$	22,869	$	171,139	Total Revenue	$	122,609	$	75,372	$	197,981

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Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

Six Months Ended September 30, 2021
Americas EMEA APJ Total
Software and Products Revenue $ 95,972 $ 43,621 $ 17,830 $ 157,423
Customer Support Revenue 103,081 53,062 20,279 176,422
Other Services Revenue 16,703 7,542 3,171 27,416
Total Revenue $ 215,756 $ 104,225 $ 41,280 $ 361,261


		Six Months Ended September 30, 2020									Three Months Ended June 30, 2021
		Americas		EMEA		APJ		Total			Americas		International		Total
Software and Products Revenue	Software and Products Revenue	$	89,886	$	40,858	$	18,119	$	148,863	Software and Products Revenue	$	51,787	$	30,375	$	82,162
Customer Support Revenue	Customer Support Revenue	109,415		48,221		20,454		178,090		Customer Support Revenue	51,874		37,095		88,969
Other Services Revenue	Other Services Revenue	8,907		5,639		2,640		17,186		Other Services Revenue	7,310		4,980		12,290
Total Revenue	Total Revenue	$	208,208	$	94,718	$	41,213	$	344,139	Total Revenue	$	110,971	$	72,450	$	183,421

Information about Contract Balances

Amounts collected in advance of services being provided are accounted for as ~~Deferred~~deferred revenue. Nearly all of our ~~Deferred~~deferred revenue balance is related to services revenue, primarily customer support contracts and software-as-a-service contracts.

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~~unbilled receivables. Unbilled receivables, which are anticipated to be invoiced in the next twelve months, are included in ~~Accounts~~accounts receivable on the ~~Consolidated Balance Sheets.~~consolidated balance sheets. Long-term unbilled receivables are included in ~~Other~~other assets. The opening and closing balances of our ~~Accounts~~accounts receivable, ~~Unbilled~~unbilled receivables, and ~~Deferred~~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, 2021 $ 168,985 $ 19,141 $ 7,463 $ 253,211 $ 119,231
Increase (decrease), net (20,372) (1,482) (2,961) (5,633) 5,602
Ending Balance as of September 30, 2021 $ 148,613 $ 17,659 $ 4,502 $ 247,578 $ 124,833


	Accounts Receivable		Unbilled Receivable (current)		Unbilled Receivable (long-term)		Deferred Revenue (current)		Deferred Revenue (long-term)
Opening Balance as of March 31, 2022	$	177,182	$	17,056	$	14,296	$	267,017	$	150,180
Increase (decrease), net	(15,637)		2,934		(394)		(2,490)		1,770
Ending Balance as of June 30, 2022	$	161,545	$	19,990	$	13,902	$	264,527	$	151,950

The net decrease in ~~Accounts~~accounts receivable (inclusive of ~~Unbilled~~unbilled receivables) is a result of a decrease in software and products revenue relative to the fourth quarter of the prior fiscal year. ~~Deferred~~The decrease in deferred revenue ~~remained relatively consistent~~is primarily as the result of a strengthening of the U.S. dollar and a sequential decrease in deferred revenue associated with customer support contracts partially offset by an increase in deferred revenue associated with Metallic contracts that are billed upfront and recognized ratably over the contract period partially offset by a seasonal decline in deferred revenue associated with customer support contracts as the renewal of our customer support contracts is concentrated in our fiscal third and fourth quarters.period.

The amount of revenue recognized in the period that was included in the March 31, ~~2021~~2022 balance of deferred revenue was ~~$70,117 and $160,926~~$92,149 for the three ~~and six~~ months ended ~~September~~June 30, ~~2021.~~2022. The vast majority of this revenue consists of customer support ~~arrangements.~~arrangements and Metallic. The amount of software and products revenue recognized in the three ~~and six~~ months ended ~~September~~June 30, ~~2021~~2022 related to performance obligations from prior periods was not significant.

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~~Commvault Systems, Inc~~

~~Notes to Consolidated Financial Statements - Unaudited (continued)~~

~~(In thousands, except per share data)~~

Remaining Performance Obligations

In addition to the amounts included in deferred revenue as of ~~September~~June 30, ~~2021, $37,760~~2022, $76,825 of revenue may be recognized from remaining performance obligations, of which approximately ~~$4,300~~$9,900 was related to software and products. We expect the majority of this software and products revenue to be recognized during fiscal ~~2022.~~2023. Most of this software and products revenue is associated with renewals of term licenses which have not yet expired. The ~~vast~~ majority of the services revenue is related to other professional services which may be recognized over the next twelve months but is contingent upon a number of factors, including customers’ needs and ~~schedules.~~Metallic.

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Commvault Systems, Inc

Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

4. Net Income per Common Share

Three Months Ended September 30, Six Months Ended September 30,
2021 2020 2021 2020
Net income (loss) $ 1,731 $ (41,171) $ 15,628 $ (38,888)
Basic net income (loss) per common share:
Basic weighted average shares outstanding 45,743 46,516 45,960 46,354
Basic net income (loss) per common share $ 0.04 $ (0.89) $ 0.34 $ (0.84)
Diluted net income (loss) per common share:
Basic weighted average shares outstanding 45,743 46,516 45,960 46,354
Dilutive effect of stock options and restricted stock units 1,856 — 1,976 —
Diluted weighted average shares outstanding 47,599 46,516 47,936 46,354
Diluted net income (loss) per common share $ 0.04 $ (0.89) $ 0.33 $ (0.84)

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 exercise of stock options, vesting of restricted stock units and shares to be purchased under the Employee Stock Purchase Plan ("ESPP"). 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 common share:


	Three Months Ended June 30,
	2022		2021
Net income	$	3,511	$	13,897
Basic net income per common share:
Basic weighted average shares outstanding	44,743		46,180
Basic net income per common share	$	0.08	$	0.30
Diluted net income per common share:
Basic weighted average shares outstanding	44,743		46,180
Dilutive effect of stock options and restricted stock units	1,122		1,987
Diluted weighted average shares outstanding	45,865		48,167
Diluted net income per common share	$	0.08	$	0.29

The diluted weighted-average shares outstanding exclude outstanding stock options, restricted stock units, performance restricted stock units and shares to be purchased under the ~~employee stock purchase plan~~ESPP totaling ~~472~~535 and ~~5,040~~616 for the three months ended ~~September~~June 30, 2022 and 2021, ~~and 2020,~~ respectively, ~~and 597 and 5,031 for the six months ended September 30, 2021 and 2020,~~ because the effect would have been anti-dilutive.

5. Commitments and Contingencies

~~During~~From time to time, we are subject to claims in legal proceedings arising in the ~~second quarter~~normal course of fiscal 2022, we entered into a settlement agreement resulting in a $2,500 gain which resolved certain legal matters. The settlement amount is recorded in General and administrative expenses net against related legal expenses.

business. 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.

6. 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.

~~Our~~On April 21, 2022, the Board of Directors (the "Board") approved a new share repurchase program of $250,000. The Board's authorization has ~~approved, and~~no expiration date. For the three months ended June 30, 2022, we ~~intend to execute, a capital allocation policy that provides for the repurchase of $200,000~~repurchased $18,923 of our common stock, ~~for~~or approximately 310 shares. As a result, $231,077 remains available under the period from February 1, 2021 through the end of our 2022 fiscal year, plus the use of approximately 75% of our fiscal 2022 free cash flow for additional repurchases during fiscal year 2022. From the period beginning February 1, 2021 through September 30, 2021 we have repurchased $242,220 of our common stock.current authorization.

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Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

7. Stock Plans

The following table presents the stock-based compensation expense included in ~~Cost~~cost of services revenue, ~~Sales~~sales and marketing, ~~Research~~research and development, ~~General~~general and administrative ~~expenses~~ and ~~Restructuring~~restructuring expenses for the three ~~and six~~ months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. Stock-based compensation is attributable to ~~stock options,~~ restricted stock units, ~~performance based~~performance-based awards and the ~~employee stock purchase plan.~~ESPP.


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended June 30,
		2021		2020		2021		2020			2022		2021
Cost of services revenue	Cost of services revenue	$	1,042	$	740	$	2,227	$	1,406	Cost of services revenue	$	1,243	$	1,185
Sales and marketing	Sales and marketing	9,974		8,988		17,282		16,192		Sales and marketing	11,393		7,308
Research and development	Research and development	8,410		5,578		15,595		11,519		Research and development	9,241		7,185
General and administrative	General and administrative	6,773		4,631		12,784		9,714		General and administrative	7,931		6,011
Restructuring	Restructuring	250		647		372		704		Restructuring	1,287		122
Stock-based compensation expense	Stock-based compensation expense	$	26,449	$	20,584	$	48,260	$	39,535	Stock-based compensation expense	$	31,095	$	21,811

As of ~~September~~June 30, ~~2021,~~2022, there was ~~$121,951~~$155,830 of unrecognized stock-based compensation expense ~~related to restricted stock unit awards~~ that is expected to be recognized over a weighted-average period of ~~1.68~~1.87 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.

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~~Commvault Systems, Inc~~

~~Notes to Consolidated Financial Statements - Unaudited (continued)~~

~~(In thousands, except per share data)~~

~~Stock Options~~

Stock option activity ~~for~~was not significant in the ~~six~~three months ended ~~September~~June 30, 2022. In the three months ended June 30, 2021, ~~is as follows:~~

Options Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value
Outstanding as of March 31, 2021 1,357 $ 62.06
Options granted — —
Options exercised (391) 46.31
Options forfeited — —
Options expired (8) 84.65
Outstanding as of September 30, 2021 958 68.30 1.93 $ 11,613
Exercisable as of September 30, 2021 958 68.30 1.93 $ 11,613

~~The total~~there were 337 options exercised with an intrinsic value of ~~options exercised was $12,460 for the six months ended September 30, 2021 and $356 for the six months ended September 30, 2020.~~$10,835.

Restricted Stock Units

Restricted stock unit activity for the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 is as follows:


Non-vested Restricted Stock Units	Non-vested Restricted Stock Units	Number of Awards	Weighted- Average Grant Date Fair Value		Non-vested Restricted Stock Units	Number of Awards	Weighted- Average Grant Date Fair Value
Non-vested as of March 31, 2021		3,451	$	44.90
Non-vested as of March 31, 2022					Non-vested as of March 31, 2022	3,310	$	58.16
Awarded	Awarded	731	74.28		Awarded	814	62.60
Vested	Vested	(824)	44.93		Vested	(620)	55.44
Forfeited	Forfeited	(179)	47.74		Forfeited	(113)	59.46
Non-vested as of September 30, 2021		3,179	$	51.42
Non-vested as of June 30, 2022					Non-vested as of June 30, 2022	3,391	$	59.68

The weighted-average fair value of restricted stock units awarded was ~~$76.79 and $74.28~~$62.60 per unit during the three ~~and six~~ months ended ~~September~~June 30, ~~2021,~~2022, and ~~$42.02 and $37.42~~$73.66 per unit during the three ~~and six~~ months ended ~~September~~June 30, ~~2020.~~2021. The weighted-average fair value of awards includes the awards with a market condition described below.

Performance Based Awards

In the ~~six~~three months ended ~~September~~June 30, ~~2021,~~2022, we granted ~~117~~126 performance restricted stock units ("PSUs") to certain executives. Vesting of these awards is contingent upon i) us meeting certain ~~revenue and~~ non-GAAP performance goals (performance-based) in fiscal ~~2022~~2023 and ii) our customary service periods. The awards vest over three years. ~~These~~The vesting quantity of these awards ~~generally have potential to vest at 200%~~may vary based on actual fiscal ~~2022~~2023 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.

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Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

Awards with a Market Condition

In the ~~six~~three months ended ~~September~~June 30, ~~2021,~~2022, we granted ~~105~~126 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 3 annual tranches and have a maximum potential to vest at 200% ~~(210~~(252 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~~three months ended ~~September~~June 30, ~~2021~~2022 was ~~$87.74~~$76.48 per unit. The awards are included in the restricted stock unit table.

~~Employee Stock Purchase Plan~~

The Employee Stock Purchase Plan (the “Purchase Plan”) 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 Purchase Plan 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 85 shares in exchange for $5,160 of proceeds in the six months ended September 30, 2021 and 129 shares in exchange for $4,652 of proceeds in the six months ended September 30, 2020. The Purchase Plan 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 Purchase Plan for six months ended September 30, 2021 and 2020 was $1,567 and $1,511, respectively. As of September 30, 2021, there was approximately $1,291 of unrecognized cost related to the current purchase period of our Purchase Plan.

8. Income Taxes

Income tax expense was ~~$2,555~~$3,705 in the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 compared to expense of ~~$4,211~~$1,731 in the ~~six~~three months ended ~~September~~June 30, ~~2020. Current quarter~~2021. The increase in current income tax expense relative to the prior year relates primarily to current ~~foreign taxes. In~~federal and state taxes driven by the effects of capitalization and amortization of research and development expenses starting in our fiscal ~~2018, we determined~~year 2023 as required by the 2017 Tax Cuts and Jobs Act. We believe that it ~~was~~is more likely than not that we will not realize the benefits of our gross deferred tax assets and therefore ~~recorded~~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. Our position remains unchanged with respect to the realizability of our deferred tax assets~~zero as of ~~September~~June 30, ~~2021.~~2022.

9. Restructuring

Our restructuring ~~plan, initiated in the first quarter of fiscal 2019, is~~plans are aimed to increase efficiency in our sales, marketing and distribution functions, as well as reduce costs across all functional areas. In the fourth quarter of fiscal 2022, we initiated a restructuring plan to combine the management of our EMEA and APJ field organizations. These restructuring charges relate primarily to severance and related costs associated with headcount reductions and stock-based compensation related to modifications of existing unvested awards granted to certain employees impacted by the restructuring ~~plan and lease abandonment charges.~~plan.

For the three ~~and six~~ months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, restructuring charges were comprised of the following:


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended June 30,
		2021		2020		2021		2020			2022		2021
Employee severance and related costs	Employee severance and related costs	$	386	$	4,895	$	1,710	$	6,695	Employee severance and related costs	$	845	$	1,324
Lease impairments and related costs (1)		—		225		—		692

Stock-based compensation	Stock-based compensation	250		647		372		704		Stock-based compensation	1,287		122
Total restructuring charges	Total restructuring charges	$	636	$	5,767	$	2,082	$	8,091	Total restructuring charges	$	2,132	$	1,446

Restructuring accruals

The activity in our restructuring accruals for the three months ended June 30, 2022 is as follows:


	Total
Balance as of March 31, 2022	$	2,261
Employee severance and related costs	845
Payments	(2,454)
Balance as of June 30, 2022	$	652

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Notes to Consolidated Financial Statements - Unaudited (continued)

(In thousands, except per share data)

~~(1)~~ ~~Lease impairment charges~~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 J.P. Morgan. 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 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 June 30, 2022, 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 June 30, 2022 were $514. The amortization of debt issuance costs and interest expense incurred for the three ~~and six~~ months ended ~~September~~June 30, ~~2020 relate to 3 and 5 offices, respectively. There were no lease impairment charges for the three and six months ended September 30, 2021.~~2022 was $92.

~~Restructuring accruals~~

~~The activity in our restructuring accruals for the six months ended September 30, 2021 is as follows:~~


	~~Total~~
~~Balance as of March 31, 2021~~	$	~~3,095~~
~~Employee severance and related costs~~	~~1,710~~
~~Payments~~	~~(4,306)~~
~~Balance as of September 30, 2021~~	$	~~499~~

1613

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis along with our consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q. The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2021.~~2022. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

Incorporated in Delaware in 1996, Commvault Systems, Inc. is a global data ~~protection and information~~ management ~~software~~ company offering customers enterprise level, intelligent data ~~management solutions built from the ground up on~~services via a single platform and unified code base. ~~Commvault was incorporated in Delaware in 1996.~~

~~At Commvault, we~~We believe in solving hard problems for our ~~customers. To do this, we provide capabilities which enable~~customers by enabling our customers to accelerate their digital transformation in today's ~~ever evolving workforce using tools that are light touch and utilize artificial intelligence and machine learning to drive automation.~~ever-evolving workforce. Our product portfolio ~~empowers our customers to reduce~~includes intuitive tools and powerful machine learning technology that drives automation, reduces complexity, ~~reign~~reigns in data fragmentation, and ~~accelerate their~~accelerates a customer’s cloud journey. ~~All software~~Our product functionality ~~shares~~share the same back-end technologies to deliver the benefits of a holistic approach to protecting, managing, and ~~accessing~~securing data. Our ~~software addresses~~products address many aspects of ~~storage and~~ data management, ~~in the enterprise,~~from data protection and security, to data governance, transformation and insights, while providing ~~scalability and control of data and information.~~scalability. We believe our technology ~~provides~~and professional services provide the broadest set of capabilities in the industry, which ~~allows~~enables customers to ~~reduce storage costs~~efficiently and ~~administrative overhead. We also provide our customers with a broad range of professional services.~~cost-effectively scale their data on premise or in the cloud.

Sources of Revenues

We derive a significant portion of our total revenues from sales of licenses of our software applications and related appliance products. We do not customize our software or products for a specific end-user customer. We sell our software applications and products to end-user customers both directly through our sales force and indirectly through our global network of value-added reseller partners, systems integrators, corporate resellers and original equipment manufacturers. Our software and products revenue was ~~44%~~47% and ~~43%~~45% of our total revenues for the ~~six~~three months ended ~~September~~June 30, 2022 and 2021, respectively.

We continue to focus on subscription and ~~2020,~~other recurring revenue arrangements and began generating revenue from the renewals of subscription licenses sold in prior years. Any of our licensing models (capacity, instance based, etc.) can be sold via a subscription arrangement. In these arrangements the customer has the right to use the software over a designated period of time. The capacity of the license is fixed and the customer has made an unconditional commitment to pay. Software revenue in these arrangements is generally recognized when the software is delivered. During the three months ended June 30, 2022 and 2021, approximately 81% and 60% of software license revenue was sold under a subscription model, respectively. We also sell to some customers, primarily managed service providers, via utility, or pay-as-you-go models. In these arrangements actual usage is regularly measured and billed. Revenue in these utility arrangements is recognized as the software is used.

Our total software and products revenue in any particular period is, to a certain extent, dependent upon our ability to generate revenues from large customer software and products ~~deals.~~deals, which we refer to as larger deal transactions. Larger ~~deals~~deal transactions (transactions greater than $0.1 ~~million)~~million of software and products revenue) represented ~~68%~~75% and 69% of our total software and products revenue in the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Software and products revenue generated through indirect distribution channels accounted for approximately 90% of total software and products revenue in both the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. Software and products revenue generated through direct distribution channels accounted for approximately 10% of total software and products revenue in both the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. Deals initiated by our direct sales force are sometimes transacted through indirect channels based on end-user customer requirements, which are not always in our control and can cause this overall percentage split to vary from period-to-period. As such, there may be fluctuations in the dollars and percentage of software and products revenue generated through our direct distribution channels from time-to-time. We believe that the growth of our software and products revenue, derived from both our indirect channel partners and direct sales force, are key attributes to our long-term growth strategy. We ~~plan~~intend to continue to invest in both our channel relationships and direct sales force in the future, but we continue to expect more revenue to be generated through indirect distribution channels over the long term. The

failure of our indirect distribution channels or our direct sales force to effectively sell our software applications could have a material adverse effect on our revenues and results of operations.

We have a non-exclusive distribution agreement covering our North American commercial markets and our U.S. Federal Government market with Arrow Enterprise Computing Solutions, Inc. ("Arrow"), a subsidiary of Arrow Electronics, Inc. Pursuant to this distribution agreement, Arrow's primary role is to enable a more efficient and effective distribution channel for our products and services by managing our reseller partners and leveraging their own industry experience. We generated ~~35%~~36% and ~~36%~~37% of our total revenues through Arrow for the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. If Arrow were to discontinue or reduce the sales of our products or if

our agreement with Arrow were terminated, and if we were unable to take back the management of our reseller channel or find another North American distributor to replace Arrow, ~~then such events would have~~there could be a material adverse effect on our future business.

Our services revenue was ~~56%~~53% and 55% of our total revenues for the ~~six~~three months ended ~~September~~June 30, 2022 and 2021, ~~and 57% of our total revenues for the six months ended September 30, 2020.~~respectively. Our services revenue is made up of fees from the delivery of customer support and other professional services, which are typically sold in connection with the sale of our software applications. Customer support agreements provide technical support and unspecified software updates on a when-and-if-available basis for an annual fee based on licenses purchased and the level of service subscribed. Metallic, our software-as-a-service solution, allows customers to use hosted software over the contract period without taking possession of the software. Revenue related to Metallic is also included in services revenue and is generally recognized ratably over the contract term. Other professional services include consulting, assessment and design services, implementation and post-deployment services and training, all of which to date have predominantly been sold in connection with the sale of software applications. ~~Our software-as-a-service solution, branded Metallic, is also included in services revenue. Revenue from Metallic is recognized ratably over the contract period.~~

Foreign Currency Exchange Rates’ Impact on Results of Operations

Sales outside the United States were ~~47%~~44% of our total revenue for the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 and 45% of our total revenue for the ~~six~~three months ended ~~September~~June 30, ~~2020.~~2021. The income statements of our non-U.S. operations are translated into U.S. dollars at the average exchange rates for each applicable month in a period. To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions generally results in increased revenue, operating expenses and income from operations for our non-U.S. operations. Similarly, our revenue, operating expenses and net income will generally decrease for our non-U.S. operations if the U.S. dollar strengthens against foreign currencies.

Using the average foreign currency exchange rates from the three months ended ~~September~~June 30, ~~2020,~~2021, our software and products revenue would have been ~~lower~~higher by ~~$0.8~~$3.9 million, our services revenue would have been ~~lower~~higher by ~~$1.2~~$4.9 million, our cost of sales would have been ~~lower~~higher by ~~$0.2~~$1.0 million and our operating expenses would have been ~~lower~~higher by ~~$1.2~~$4.3 million from non-U.S. operations for the three months ended ~~September~~June 30, 2021. Using the average foreign currency exchange rates from the six months ended September 30, 2020, our software and products revenue would have been lower by $3.9 million, our services revenue would have been lower by $5.7 million, our cost of sales would have been lower by $1.2 million and our operating expenses would have been lower by $4.7 million from non-U.S. operations for the six months ended September 30, 2021.2022.

In addition, we are exposed to risks of foreign currency fluctuation primarily from cash balances, accounts receivables and intercompany accounts denominated in foreign currencies and are subject to the resulting transaction gains and losses, which are recorded as a component of ~~General~~general and administrative expenses. We recognized net foreign currency transaction gains of approximately $0.5 million and losses of ~~approximately~~ $0.1 ~~million and $0.2~~ million for the three ~~and six~~ months ended ~~September~~June 30, ~~2021, respectively. We recognized net foreign currency transaction losses of approximately $1.2 million~~2022 and ~~$0.4 million for the three and six months ended September 30, 2020,~~2021, respectively.

1815

Critical Accounting Policies

~~Our condensed~~In presenting our consolidated financial statements ~~are prepared~~ in ~~accordance~~conformity with U.S. ~~GAAP. The preparation of these condensed consolidated financial statements requires us~~generally accepted accounting principles, we are required to make estimates and ~~assumptions~~judgments that affect the amounts reported ~~amounts~~therein. Some of ~~assets, liabilities, revenue, costs~~the estimates and ~~expenses and related disclosures.~~assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base ~~our~~these estimates on historical experience and on various other assumptions that we believe to be reasonable ~~under the circumstances. In many instances, we could have reasonably used different accounting estimates,~~ and ~~in other instances changes in the accounting estimates are reasonably likely to occur from period-to-period. Accordingly, actual~~appropriate. Actual results ~~could~~may differ significantly from ~~the estimates made by our management.~~these estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, significant judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. We consider these policies requiring significant management judgment to be critical accounting policies. These critical accounting policies are:

•Revenue Recognition

•Accounting for Income Taxes

•Goodwill

There have been no significant changes in our critical accounting policies during the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” included in our Annual Report on Form 10-K for the year ended March 31, ~~2021.~~2022.

1916

Results of Operations

Three months ended ~~September~~June 30, ~~2021~~2022 compared to three months ended ~~September~~June 30, ~~2020~~2021

Revenues (in millions)

–Total revenues increased ~~$6.7~~$14.6 million, or 4%8% as a result of the following:

•An increase in software and products and Metallic revenues.

•Software and products revenue represented ~~42%~~47% of our total ~~revenue for both the three months ended September 30, 2021 and September 30, 2020.~~

•~~Larger deal revenue (deals greater than $0.1 million) represented 67% of our software and products~~ revenue in the three months ended ~~September~~June 30, ~~2021~~2022 and ~~66%~~45% of our ~~software and products~~total revenue in the three months ended ~~September~~June 30, ~~2020.~~2021.

•Services revenue represented 53% of our total revenue in the three months ended June 30, 2022 and 55% of our total revenue in the three months ended June 30, 2021.

•Using the average foreign currency exchange rates from the three months ended June 30, 2021, our total revenues would have been 13% higher for the three months ended June 30, 2022.

–Software and products revenue increased ~~$3.0~~$10.2 million, or 4%13%, as a result of the following:

•An increase of ~~$2.9~~$13.3 million, or 6%24%, in larger deal ~~revenue.~~

•~~An increase of $0.1 million in transactions less~~revenue (deals greater than $0.1 ~~million.~~

•~~An increase of 9% in the volume of larger~~million). Larger deal revenue ~~transactions to 163 deals for~~represented 75% of our software and products revenue in the three months ended ~~September~~June 30, ~~2021, up from 150 deals for~~2022 and 69% of our software and products revenue in the three months ended ~~September~~June 30, ~~2020.~~2021.

•The average dollar amount of larger deal revenue transactions was approximately ~~$311~~$379 thousand and ~~$319~~$305 thousand for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, representing a ~~3% decrease.~~24% increase.

•OnThis increase was partially offset by a ~~year over year basis, pass through hardware sales decreased approximately $3.0~~decrease of $3.1 million in transactions less than $0.1 million. ~~Software revenues, excluding hardware, were up 9% year over year.~~

•Using the average foreign currency exchange rates from the three months ended June 30, 2021, our software and products revenue would have been 17% higher for the three months ended June 30, 2022.

–Services revenue ~~represented 58% of our total revenue in both the three months ended September 30, 2021 and September 30, 2020. Services revenue~~ increased ~~$3.7~~$4.3 million, or 4%, primarily due to the following:

•An increase ~~of $5.7 million of~~in other services revenue, driven primarily by the year over year increase in revenue from ~~Metallic.~~

•~~Partially~~Metallic, partially offset by a decrease ~~of $2.0 million~~ in revenue from customer support agreements.

•Using the average foreign currency exchange rates from the three months ended June 30, 2021, our services revenue would have been 9% higher for the three months ended June 30, 2022.

We track software and products revenue on a geographic basis. ~~The geographic regions that are tracked are~~Beginning in fiscal 2023, we have combined the ~~Americas (United States, Canada, Latin America),~~management of our EMEA and APJ field organizations into our International region (Europe, Middle East, ~~Africa) and APJ (Australia, New Zealand,~~Africa, Australia, Japan, Southeast Asia, ~~China, Japan)~~China). Our Americas ~~EMEA~~region includes the United States, Canada, and ~~APJ~~Latin America. Americas and International represented ~~59%, 30%~~65% and ~~11%~~35% of total software and products revenue, respectively, for the three months ended ~~September~~June 30, ~~2021.~~2022. Software and products revenue increased year over year by ~~13%~~15% in the Americas and 1%by 8% in ~~EMEA; whereas APJ declined 20%.~~International.

▪The increase in Americas software and products revenue was primarily the result of increases in larger deal transactions revenue. This increase was driven primarily by an ~~11%~~increase in the average dollar amount of larger deal transactions, partially offset by a decrease in smaller deal transactions revenue.

▪The increase in International software and products revenue was primarily the result of a 15% increase in larger deal ~~transactions~~ revenue driven by an increase in the volume of larger deal transactions.

▪~~EMEA~~ Using the average foreign currency exchange rates from the three months ended June 30, 2021, our International software and products revenue ~~increased as a result of an 18% increase in revenue on larger deal transactions partially offset by a decrease on deals under $0.1 million.~~

▪~~The decrease in APJ was~~would have been 20% higher for the ~~result of larger deal transactions decreasing versus the prior year period, partially offset by an increase in deals under $0.1 million.~~three months ended June 30, 2022.

Our software and products revenue in ~~EMEA and APJ~~International is subject to changes in foreign exchange rates as more fully discussed above in the “Foreign Currency Exchange Rates’ Impact on Results of Operations” section.

Cost of Revenues and Gross Margin ($ in millions)

–Total cost of revenues ~~decreased $0.2~~increased $8.5 million, and represented ~~15%~~17% and 14% of our total revenues for the three months ended ~~September~~June 30, 2022 and 2021, ~~compared to 16% for the three months ended September 30, 2020.~~respectively.

–Cost of software and products revenue ~~decreased $5.0~~increased $2.6 million and represented 4%5% of our total software and products revenue for the three months ended ~~September~~June 30, ~~2021~~2022 compared to ~~11%~~3% for the three months ended ~~September~~June 30, 2020. The decrease is the result of reduced sales of hardware associated with our appliance as well as reduced software royalties associated with sales of HyperScale appliances and software. Beginning with the launch of HyperScale X in the mid fiscal 2021, we began transitioning to a software only model. HyperScale X has also reduced software royalties relative to prior versions of HyperScale.2021.

–Cost of services revenue increased ~~$4.8~~$5.9 million, representing ~~23%~~27% of our total services revenue for the three months ended ~~September~~June 30, ~~2021~~2022 compared to ~~19%~~23% for the three months ended ~~September~~June 30, ~~2020.~~2021. The increase in cost of services revenue is primarily related to an increase in the cost of infrastructure related to Metallic.

2118

Operating Expenses ($ in millions)

–Sales and marketing expenses increased ~~$3.8~~$8.6 million, or 5%11%, primarily due to increases in employee compensation and ~~related costs relative to the same time in~~sales commissions associated with increased revenue versus the prior ~~year due to temporary salary reductions and reduced travel.~~year.

–Research and development expenses increased ~~$6.7~~$4.0 million, or ~~22%~~11%, as a result of an increase in employee compensation and related expenses attributable to the expansion of our engineering group.

•The increase in employee compensation included an increase in stock-based compensation of ~~$2.8~~$2.1 million compared to prior year.

•Investing in research and development has been a priority for Commvault, and we anticipate continued spending related to the development of our data and information management software applications.

– General and administrative expenses increased ~~$0.7~~$0.4 million, or 2%, primarily due to the following:

•~~Increase~~Stock-based compensation increases compared to the prior year partially offset by a decrease in ~~employee compensation and related~~legal costs relative to the same ~~time in the prior year due to temporary salary reductions.~~

•~~General and administrative expenses include a $2.5 million settlement gain net against related legal expenses.~~

–Depreciation and amortization expense decreased $2.7 million, from $5.1 million in the three months ended September 30, 2020 to $2.4 million in the three months ended September 30, 2021, driven by the eliminationperiod of ~~amortization of intangible assets related to Hedvig due to their impairment in the second quarter of fiscal 2021.~~

~~Income Tax Expense~~

Income tax expense was $0.8 million in the three months ended September 30, 2021 compared to a benefit of $0.5 million in the three months ended September 30, 2020. The income tax expense for the three months ended September 30, 2021 relates primarily to current foreign taxes.

~~Six months ended September 30, 2021 compared to six months ended September 30, 2020~~

~~Revenues (in millions)~~

–~~Total revenues increased $17.2 million, or 5%.~~

•~~Software and products revenue represented 44% of our total revenue in the six months ended September 30, 2021 and 43% of our total revenue in the six months ended September 30, 2020.~~

•Larger deal revenue (deals greater than $0.1 million) represented 68% of our software and products revenue in the six months ended September 30, 2021 and 69% of our software and products revenue in the six months ended September 30, 2020.

–~~Software and products revenue increased $8.6 million, or 6%, as a result of the following:~~

•~~An increase of $4.8 million, or 11%, in transactions less than $0.1 million.~~

•An increase of $3.7 million, or 4%, in larger deal revenue. This increase was driven by an increase of 21% in the volume of larger deal revenue transactions which included 348 deals for the six months ended September 30, 2021, up from 288 deals for the six months ended September 30, 2020.

•The average dollar amount of larger deal revenue transactions was approximately $308 thousand and $359 thousand for the six months ended September 30, 2021 and 2020, respectively, representing a 14% decrease. The prior year first half included a high seven figure transaction that significantly impacted the average dollar amount per transaction.

–Services revenue represented 56% of our total revenue in the six months ended September 30, 2021 and 57% of our total revenue in the six months ended September 30, 2020. Services revenue increased $8.6 million primarily due to the following:

•~~An increase of $10.2 million of other services revenue, driven primarily by the year over year increase in revenue from Metallic.~~

•~~Partially offset by a decrease of $1.7 million in revenue from customer support agreements.~~

We track software and products revenue on a geographic basis. The geographic regions that are tracked are the Americas (United States, Canada, Latin America), EMEA (Europe, Middle East, Africa) and APJ (Australia, New Zealand, Southeast Asia, China, Japan). Americas, EMEA and APJ represented 61%, 28% and 11% of total software and products revenue, respectively, for the six months ended September 30, 2021. Software and products revenue increased year over year by 7% in both the Americas and EMEA and declined 2% in APJ.

▪~~The increase in Americas software and products revenue was primarily the result of a 29% increase in transactions less than $0.1 million.~~

▪~~EMEA software and products revenue increased as a result of a 14% increase in revenue on larger deal transactions.~~

▪~~The decrease in APJ was the result of a decrease in larger deal transactions.~~

Our software and products revenue in EMEA and APJ is subject to changes in foreign exchange rates as more fully discussed above in the “Foreign Currency Exchange Rates’ Impact on Results of Operations” section.

~~Cost of Revenues and Gross Margin ($ in millions)~~

–~~Total cost of revenues increased $0.4 million, and represented 14% of our total revenues for the six months ended September 30, 2021 and 15% for the six months ended September 30, 2020.~~

–Cost of software and products revenue decreased $8.6 million, and represented 3% of our total software and products revenue for the six months ended September 30, 2021 compared to 9% for the six months ended September 30, 2020. The decrease is the result of reduced sales of hardware associated with our appliance as well as reduced software royalties associated with sales of HyperScale appliances and software. Beginning with the launch of HyperScale X in mid fiscal 2021, we began transitioning to a software only model. HyperScale X also has reduced software royalties relative to prior versions of HyperScale.

–Cost of services revenue increased $9.0 million, representing 23% of our total services revenue for the six months ended September 30, 2021 compared to 19% for the six months ended September 30, 2020. The increase in cost of services revenue is related to an increase in the cost of infrastructure related to Metallic, as well as an increase in employee compensation and related expenses compared to the prior year due to the temporary pay cuts enacted in the first half of 2021.

~~Operating Expenses ($ in millions)~~

– ~~Sales and marketing expenses decreased $1.5 million, or 1%, primarily due to a decrease in employee compensation and related costs.~~

– ~~Research and development expenses increased $11.8 million, or 19%, as a result of an increase in employee compensation and related expenses attributable to the expansion of our engineering group.~~

•~~Increase in employee compensation included an increase in stock-based compensation of $4.1 million compared to prior year.~~

•~~Investing in research and development has been a priority for Commvault, and we anticipate continued spending related to the development of our data and information management software applications.~~

– ~~General and administrative expenses increased $5.5 million, or 12%, primarily due to the following:~~

•~~Increase in employee compensation and related expenses compared to the prior year due to the temporary pay cuts enacted in the first half of 2021.~~

•~~General and administrative expenses include a $2.5 million settlement gain net against related legal expenses.~~

•~~Stock-based compensation increased $3.1 million compared to~~ the prior year.

–Restructuring: Our restructuring ~~plan is~~plans are intended to increase efficiency in our sales, marketing and distribution functions as well as reduce costs across all functional areas. Beginning in fiscal 2023, we have combined the management of our EMEA and APJ field operations. Restructuring expenses were $2.1 million and ~~$8.1~~$1.4 million infor the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. These restructuring charges relate primarily to severance and related costs associated with headcount reductions. These charges include ~~$0.4~~$1.3 million and ~~$0.7~~$0.1 million ~~in the six months ended September 30, 2021 and 2020, respectively,~~ of stock-based compensation related to modifications of existing awards granted to certain employees included in the ~~restructuring.~~restructuring for the three months ended June 30, 2022 and 2021, respectively. We cannot guarantee the restructuring program will achieve its intended result. Risks associated with this restructuring program also include additional unexpected costs, adverse effects on employee morale and the failure to meet operational and growth targets due to the loss of key employees, any of which may impair our ability to achieve anticipated results of operations or otherwise harm our business.

–Depreciation and amortization expense ~~decreased $5.5~~increased $0.3 million, from ~~$10.1~~$2.3 million in the ~~six~~three months ended ~~September~~June 30, ~~2020~~2021 to ~~$4.6~~$2.6 million in the ~~six~~three months ended ~~September~~June 30, ~~2021, driven by~~2022, as a result of the ~~elimination of amortization of~~acquisition an intangible ~~assets related to Hedvig due to their impairment~~asset in the ~~second~~fourth quarter of fiscal ~~2021.~~year 2022.

Income Tax Expense

Income tax expense was ~~$2.6~~$3.7 million in the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 compared to expense of ~~$4.2~~$1.7 million in the ~~six~~three months ended ~~September~~June 30, ~~2020.~~2021. The increase in current income tax expense ~~for~~relative to the ~~six months ended September 30, 2021~~prior year relates primarily to current ~~foreign taxes.~~

federal and state taxes driven by the effects of capitalization and amortization of research and development expenses starting in our fiscal year 2023 as required by the 2017 Tax Cuts and Jobs Act. 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 June 30, 2022.

Liquidity and Capital Resources

As of ~~September~~June 30, ~~2021,~~2022, our cash balance was ~~$295.8~~$258.7 million. In recent fiscal years, our principal source of liquidity has been cash provided by operations.

~~As of September 30, 2021, the~~ The amount of cash and cash equivalents held outside of the United States by our foreign legal entities was approximately ~~$172.7~~$167.8 million. These balances are dispersed across many international locations around the world. We believe that such dispersion meets the current and anticipated future liquidity needs of our foreign legal entities. In the event we ~~needed~~need to repatriate funds from outside of the United States, such repatriation would likely be subject to restrictions by local laws and/or tax consequences including foreign withholding taxes.

~~During~~On December 13, 2021, we entered into a five-year $100 million senior secured revolving credit facility (the “Credit Facility”) with J.P. Morgan. 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 ~~six~~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 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 June 30, 2022, there were no borrowings under the Credit Facility and we were in compliance with all covenants.

On April 21, 2022, the Board of Directors approved a new share repurchase program of $250 million. The Board's authorization has no expiration date. For the three months ended ~~September~~June 30, ~~2021,~~2022, we have repurchased ~~$180.1~~$18.9 million of our common ~~stock (2,408 shares)~~stock. As a result, $231.1 million remains available under ~~our share repurchase program. Our stock repurchase program has been funded by our existing cash and cash equivalent balances as well as cash flows provided by our operations.~~

~~Our Board has approved, and we intend to execute, a capital allocation policy that provides for~~ the repurchase of $200 million of our common stock for the period from February 1, 2021 through the end of our 2022 fiscal year, plus the use of approximately 75% of our fiscal 2022 free cash flow for additional repurchases during fiscal year 2022. Since February 1, 2021 through September 30, 2021 we have repurchased $242.2 million of common stock.current authorization.

Our summarized cash flow information is as follows (in thousands):

Six Months Ended September 30,
2021 2020
Net cash provided by operating activities $ 63,270 $ 42,242
Net cash (used in) provided by investing activities (4,699) 29,138
Net cash (used in) provided by financing activities (156,831) 5,271
Effects of exchange rate-changes in cash (3,170) 10,420
Net (decrease) increase in cash and cash equivalents $ (101,430) $ 87,071


	Three Months Ended June 30,
	2022		2021
Net cash provided by operating activities	$	22,433	$	37,211
Net cash used in investing activities	(1,882)		(1,442)
Net cash used in financing activities	(18,299)		(74,613)
Effects of exchange rate - changes in cash	(11,046)		756
Net decrease in cash and cash equivalents	$	(8,794)	$	(38,088)

2620

–Net cash provided by operating activities was impacted by net income adjusted for the impact of non-cash charges and a decrease in ~~accounts receivable,~~accrued liabilities partially offset by a decrease in ~~accrued liabilities.~~accounts receivable.

–Net cash used in investing activities was related to ~~$2.7~~$1.0 million in the purchase of ~~investments~~equity securities and ~~$2.0~~$0.9 million of capital expenditures.

–Net cash used in financing activities was the result of ~~$180.1~~$18.9 million of repurchases of common shares and $0.1 million of debt issuance costs partially offset by ~~$23.3~~$0.7 million of proceeds from the exercise of stock options.

Working capital ~~decreased $91.5~~increased $19.1 million from ~~$234.4~~$90.0 million as of March 31, ~~2021~~2022 to ~~$142.9~~$109.1 million as of ~~September~~June 30, ~~2021.~~2022. The net ~~decrease~~increase in working capital iswas primarily driven by cash provided by operating activities and the ~~result~~impact of ~~cash used for share repurchases during the quarter.~~foreign currency.

We believe that our existing cash, cash equivalents and our cash from operations will be sufficient to meet our anticipated cash needs for working capital, income taxes, capital expenditures and potential stock repurchases for at least the next twelve months. We may seek additional funding through public or private financings or other arrangements during this period. Adequate funds may not be available when needed or may not be available on terms favorable to us, or at all. If additional funds are raised by issuing equity securities, dilution to existing stockholders will result. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to fund additional interest expense. If funding is insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2021,~~2022, we did not have off-balance sheet financing arrangements, including any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

~~Indemnifications~~

Certain of our software licensing agreements contain certain provisions that indemnify our customers from any claim, suit or proceeding arising from alleged or actual intellectual property infringement. These provisions continue in perpetuity along with our software licensing agreements. We have never incurred a liability relating to one of these indemnification provisions in the past and we believe that the likelihood of any future payout relating to these provisions is remote. Therefore, we have not recorded a liability during any period related to these indemnification provisions.

Impact of Recently Issued Accounting Standards

See Note 2 of the notes to the unaudited consolidated financial statements for a discussion of the impact of recently issued accounting standards.

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

None.

Foreign Currency Risk

Economic Exposure

As a global company, we face exposure to adverse movements in foreign currency exchange rates. Our international sales are generally denominated in foreign currencies and this revenue could be materially affected by currency fluctuations. Approximately ~~47%~~44% of our ~~sales~~revenues were from outside the United States for the ~~six~~three months ended ~~September~~June 30, ~~2021.~~2022. Our primary exposures are to fluctuations in exchange rates for the U.S. dollar versus the Euro, and to a lesser extent, the Australian dollar, British pound sterling, Canadian dollar, Chinese yuan, Indian rupee, Korean won and Singapore dollar. Changes in currency exchange rates could adversely affect our reported revenues and require us to reduce our prices to remain competitive in foreign markets, which could also have a material adverse effect on our results of operations. Historically, we have periodically reviewed and revised the pricing of our products available to our customers in foreign countries and we have not maintained excess cash balances in foreign accounts.

Transaction Exposure

Our exposure to foreign currency transaction gains and losses is primarily the result of certain net receivables due from our foreign subsidiaries and customers being denominated in currencies other than the functional currency of the subsidiary. Our foreign subsidiaries conduct their businesses in local currency and we generally do not maintain excess U.S. dollar cash balances in foreign accounts.

Foreign currency transaction gains and losses are recorded in ~~General~~general and administrative expenses in the ~~Consolidated Statements~~consolidated statements of ~~Operations.~~operations. We recognized net foreign currency transaction gains of $0.5 million and losses of ~~less than~~ $0.1 ~~million and $0.2~~ million for the three ~~and six~~ months ended ~~September~~June 30, ~~2021, respectively. We recognized net foreign currency transaction losses of approximately $1.2 million~~2022 and ~~$0.4 million for the three and six months ended September 30, 2020,~~2021, respectively.

Item 4 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of ~~September~~June 30, ~~2021.~~2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2021.~~2022.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the ~~second~~first quarter of fiscal ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Internal Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal ~~controls~~control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

2922

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are subject to claims in legal proceedings arising in the normal course of business. 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. Please refer to Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, ~~2021~~2022 for additional information.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, ~~2021,~~2022, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of the risks actually occur, our business, financial conditions or results of operations could be negatively affected. In that case, the trading price of our stock could decline, and our stockholders may lose part or all of their investment.

Item 2. Unregistered ~~Sale~~Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

On April 21, 2022, the Board of Directors approved a new share repurchase program of $250.0 million. The Board's authorization has no expiration date. During the three months ended ~~September~~June 30, ~~2021,~~2022, we repurchased ~~$90.0~~$18.9 million of common stock, or ~~1,158,900~~approximately 0.3 million shares, under our share repurchase program. As a result, $231.1 million remains available under the current authorization. A summary of our repurchases of common stock is as follows:

Period Total number of shares purchased as part of publicly announced programs Average price paid per share Total dollar value of purchases Approximate dollar value of shares that may yet be purchased under the program
July 2021 398,600 $ 78.26 $ 31,194,940 *
August 2021 425,500 $ 76.76 $ 32,661,456 *
September 2021 334,800 $ 78.22 $ 26,187,390 *
Three months ended September 30, 2021 1,158,900 $ 77.70 90,043,786

* Our Board has approved, and we intend to execute, a capital allocation policy that provides for the repurchase of $200 million of our common stock for the period from February 1, 2021 through the end of our 2022 fiscal year, plus the use of approximately 75% of our fiscal 2022 free cash flow for additional repurchases during fiscal year 2022. Since February 1, 2021 through September 30, 2021 we have repurchased $242.2 million of common stock.


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
April 1-30, 2022	—	$	—	—	$250,000
May 1-31, 2022	142,800	$	59.25	142,800	$241,539
June 1-30, 2022	166,900	$	62.68	166,900	$231,077
Three Months Ended June 30, 2022	309,700	$	61.10	309,700

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

~~Not Applicable.~~Retention Agreements

On July 14, 2022, the Compensation Committee of the Board of Directors of Commvault Systems, Inc. (the “Company”) approved a form of executive retention agreement to be entered into with Gary Merrill in connection with Mr. Merrill’s appointment as the Chief Financial Officer of the Company, as previously disclosed in the Current Report on Form 8-K, dated May 3, 2022, and Riccardo Di Blasio, the Chief Revenue Officer of the Company. On July 22, 2022 and on July 27, 2022, the Company entered into executive retention agreements with Mr. Merrill and Mr. Di Blasio (the "ERAs"). The ERA with Mr. Di Blasio replaces and supersedes his current executive retention and change in control agreements with the Company.

3023

Provided the executive executes a release of claims in favor of the Company, the ERAs provide for the following severance benefits upon a termination of employment (i) by the Company without cause or by the executive in certain circumstances as further described in the ERA other than within 24 months following a “change in control” (as defined in the ERA) (a “non-CIC qualifying termination”), and (ii) by the Company without cause or by the executive for “good reason” (as defined in the ERA) within 24 months following a change in control (a “CIC qualifying termination”): (a) 12 months of base salary plus, in the case of a CIC qualifying termination, a prorated target annual bonus, (b) accelerated vesting of equity awards that would have vested (x) within one year of termination in the case of a non-CIC qualifying termination with performance-based awards vesting at the actual level of performance or (y) in full in the event of a CIC qualifying termination with performance-based awards vesting at target or actual level of performance, as applicable, and (c) a lump-sum cash payment equal to 12 months of COBRA continuation.

The foregoing description of the ERAs is not complete and is qualified in its entirety by reference to the full text of the ERAs, which are filed hereto as Exhibits 10.2-10.3 and are incorporated herein by reference.

Item 6. Exhibits


Exhibit No.			Description
10.1			~~Commvault Systems, Inc. Omnibus Incentive Plan (as amended~~Agreement and General Release with Brian Carolan, dated April 28, 2022 (incorporated by reference to Exhibit 10.2 to the ~~Fifth Amendment Thereof)~~Company's Form 8-K dated May 3, 2022)
10.2			Executive Retention Agreement with Gary Merrill dated July 27, 2022
10.3			Executive Retention Agreement with Riccardo Di Blasio dated July 22, 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~~32.1*			Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
~~32.2~~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.~~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

3124

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Commvault Systems, Inc.

Dated:

~~October~~July 27, ~~2021~~2022

By:

/s/ Sanjay Mirchandani

Sanjay Mirchandani

Director, President and Chief Executive Officer

(Principal Executive Officer)

Dated:

~~October~~July 27, ~~2021~~2022

By:

/s/ ~~Brian Carolan~~Gary Merrill

~~Brian Carolan~~Gary Merrill

~~Vice President and~~ Chief Financial Officer

(Principal Financial Officer)

3225


	Three Months Ended September 30, 2021
	Americas		EMEA		APJ		Total
Software and Products Revenue	$	44,185	$	22,280	$	8,796	$	75,261
Customer Support Revenue	51,207		26,288		9,958		87,453
Other Services Revenue	9,393		4,114		1,619		15,126
Total Revenue	$	104,785	$	52,682	$	20,373	$	177,840



	Six Months Ended September 30, 2021
	Americas		EMEA		APJ		Total
Software and Products Revenue	$	95,972	$	43,621	$	17,830	$	157,423
Customer Support Revenue	103,081		53,062		20,279		176,422
Other Services Revenue	16,703		7,542		3,171		27,416
Total Revenue	$	215,756	$	104,225	$	41,280	$	361,261


Options	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of March 31, 2021	1,357	$	62.06
Options granted	—	—
Options exercised	(391)	46.31
Options forfeited	—	—
Options expired	(8)	84.65
Outstanding as of September 30, 2021	958	68.30		1.93	$	11,613
Exercisable as of September 30, 2021	958	68.30		1.93	$	11,613