Commvault Systems Inc

NASDAQ:CVLT

Earnings Call Analysis

Commvault Reports Strong Growth and Innovation

Commvault impressed investors with robust Q3 results, boasting an 11% increase in total revenue to $217 million. This growth is propelled by a remarkable 31% surge in subscription revenue, accounting for over half of the total revenue. The company's Annual Recurring Revenue (ARR) jumped by 17% year-over-year, with subscription ARR at a notable 29% increase. The introduction of Commvault Cloud, an innovative platform for cyber resilience, solidifies Commvault's commitment to addressing the escalating cyber-attack threats. Q3 free cash flow climbed 45% from the previous year to $43 million, reflecting the company's strong operational performance. Looking ahead, Commvault raised its fiscal Q4 subscription revenue guidance to $111-115 million, indicating a 20% year-over-year growth, and expects total revenue to hit between $210-214 million. The full fiscal year '24 projects a 15% increase in total ARR, with subscription revenue growth at 21% reaching $420-424 million.

Commvault's Strong Performance and Cyber Resiliency Focus

Commvault's third quarter results shone with double-digit growth, fueled by a transition marking the most pivotal change in their 27-year journey. While expanding operating margins by 180 basis points and repurchasing shares, the total revenue rose 11% year-over-year to $217 million, driven primarily by a 31% uptick in subscription revenue, now accounting for over half of total revenue. Subscription Annual Recurring Revenue (ARR) experienced a 29% surge, with Software as a Service (SaaS) ARR particularly impressive at a 77% jump. Adding 500 subscription customers in the quarter, Commvault's focus on cyber resiliency responded to the increased sophistication of cyber threats, aligning product development with today's digital security needs.

Financial Highlights and Growth Metrics

Commvault delivered a strong quarter with term software deals over $100,000 rising by 25%. Perpetual license revenue remained modest at $15 million, while customer support revenue held steady at $77 million. Gross margins inched up to 82.9% due to SaaS efficiencies, and the SaaS net dollar retention rate was a robust 125%. Operating expenses increased to $132 million to support go-to-market strategies, but the disciplined expense management led to EBIT growth of 21% year-over-year, as margins expanded.[15†source][16†source][18†source].

Ensuring Financial Stability

Commvault concluded the quarter debt-free with $284 million in cash, posting a free cash flow increase of 45% year-over-year. As a testament to operational prowess, they repurchased $134 million worth of stock, showcasing confidence in their growth trajectory and shareholder value proposition. Looking ahead, subscription revenue is expected to lie between $111 million and $115 million, hinting at a 20% year-over-year growth at the midpoint, while total revenue projections for Q4 are between $210 million to $214 million with consolidated gross margins anticipated to range between 81% to 82% and EBIT margins between 20% to 21%.[21†source][22†source][23†source][24†source].

Forward-Looking Guidance

Commvault expects the total ARR growth to be 15% year-over-year, with a subscription ARR increase of 25%. Subscription revenue's forecast for the year points to a 21% growth, solidifying the over 50% contribution to total revenues. The company predicts a total revenue range of $826 million to $830 million, with a positive non-GAAP EBIT margin expansion. Holding steady with a full-year free cash flow outlook of $170 million and an active share repurchase program, Commvault positions itself for sustained fiscal health.[25†source][26†source][27†source][28†source].

Business Outlook and Market Position

Commvault sees a continuation of last year's seasonality, suggesting a strong performance is expected in Q4 for SaaS ARR, which aligns with their as-a-service model's momentum. The business in the Americas stands out with total revenue increasing by 16% and subscription revenue by a notable 43% year-over-year, highlighting robust demand. Although no formal guidance for FY '25 has been issued, growth expectations for FY '25 are optimistically set to exceed that of FY '24, indicating confidence in future business performance.[35†source][36†source][37†source].

Earnings Call Transcript 2024-Q3

[Operator]

Hello, and welcome to the Commvault Q3 Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Mike Melnyk, Head of Investor Relations. Please go ahead.

[Michael Melnyk, executive]

Good morning, and welcome to our earnings conference call. I'm Michael Melnyk, Head of Investor Relations, and I'm joined by Sanjay Mirchandani, Commvault's CEO; and Gary Merrill, Commvault's CFO.An earnings presentation with key financial and operating metrics is posted on the Investor Relations website for reference. Statements made on today's call will include forward-looking statements about Commvault, future expectations, plans and prospects. All such forward-looking statements are subject to risks, uncertainties and assumptions. Please refer to the cautionary language in today's earnings release and Commvault's most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in the forward-looking statements. Commvault does not assume any obligation to update these statements. During this call, Commvault's financial results are presented on a non-GAAP basis. A reconciliation between the non-GAAP and GAAP measures can be found on our website. Thank you again for joining us. Now, I'll turn it over to Sanjay for his opening remarks. Sanjay?

[Sanjay Mirchandani, executive]

Thank you, Mike. Good morning, and thank you for joining us today. I am pleased to report our Q3 results exceeded expectations, including double-digit year-over-year growth across our most important KPIs. By our own metrics, this was an exceptional quarter. We also set the stage for the future by introducing market-leading innovation with Commvault Cloud, our revolutionary platform for cyber results.Some financial highlights include total revenue increased 11% year-over-year to $217 million. This was driven by a 31% increase in subscription revenue, which now represents more than half of our total revenue. Total ARR, the primary metric we use to measure underlying growth grew 17% year-over-year to over 0.75 of $1 billion. Subscription ARR grew 29% year-over-year to $571 million and is now over 75% of total ARR.SaaS ARR increased 77% year-over-year to $152 million, hence we expanded operating margins by 180 basis points year-over-year while continuing to repurchase shares. These results reinforce that Commvault's products and services are in more demand than ever, especially as companies grapple with how to keep their data secure, compliant and resilient in a world increasingly under threat of cyber-attacks.For two years now, we've discussed how the volume, intensity and sophistication of cyber-attacks would require a radically different approach to cyber resiliency. Gone are the days when perimeter security alone will suffice. It's just a matter of time until the bad actors get in. So, rather than just looking at prevention, CIOs and T-cells are like putting a heavy emphasis from recovery and resilience. This transition has fueled the most important pivot in our 27-year history. In November, we introduced Commvault Cloud powered by Metallic AI. This platform brings together best of all worlds. Industry-leading data protection combined with data security, data intelligence and recovery. Commvault Cloud offers the fastest, most reliable recovery of any solution in the market today. With our platform, data can be restored from anywhere to anywhere, rapidly, reliably and at massive scale.The platform provides AI capabilities, giving customers automated and predictive recovery, threat intelligence and operational efficiencies to deliver true cyber resilience. No longer will organizations need to make our natural choices between SaaS and other data center workloads. With our platform, we support more workloads than any other vendor in our space and we do all of this at the lowest total cost of ownership.We scale the platform, integrating with major hyperscalers, as well as leading cybersecurity and AI companies like Avaya, Darktrace, Databricks, Microsoft Sentinel and Palo Alto Networks, among others. I'm pleased to share those customers, partners and industry analysts have been reading about. For instance, one customer told analyst-on Enterprise Strategy Group, "We are a highly regulated industry. Commvault Cloud was the only solution we found that gives us the flexibility and assurance that satisfied our auditors. Because of Commvault Cloud, I can assure our leadership team that we are protected and we all sleep better at now".IDC Research Vice President, Phil Goodwin said, "this announcement realigns Commvault's products to meet customer preferences and set the company on a par to be very competitive in cyber-resilience". And we continue to introduce major innovations in the platform that stalled critical customer challenges. For example, with our clean room recovery offering, we are closing the gap that exists between incident response planning and readiness. Our new cleanroom recovery capabilities enable customers to thoroughly and cost-effectively test their recovery plans. It also provides them with a safe on-demand environment to recover. It is this kind of groundbreaking innovation that sets us apart from the competition and helps us take share and land new business.In fiscal Q3, we added another 500 subscription customers, bringing our total to almost 9,000. Subscription customers now represent well over half of our total active customer base. A couple of examples in Q2, a large state agency that detected security gas with its incumbent vendor. This new customer turned to Commvault for immutable airgap ransomware protection, anomaly detection and an improved cyber resilience posture. And we also help the Fortune 500 capital equipment company eliminate its patchwork of vendors and move their workloads onto our unified platform. This allows them to modernize and improve their cyber resilience posture, better protecting them from ransomware lower total cost of ownership to expand that perspective and keep us at the forefront of innovation. We also established a Cyber Resilience council comprised of security visionaries from top cyber, cloud and government organizations. The council would advise on security trends and cyber threats, which will ship product development, strategy and partnering opportunities. It is chaired by Melissa Hathaway, a thought leader in cybersecurity and digital risk management who served in two presidential administrations. But two months away from closing our fiscal year and I couldn't be more excited about our momentum as we approach fiscal year '25. With that, I'll turn it over to Gary to discuss our results. Gary?

[Gary Merrill, executive]

Thanks, Sanjay, and good morning, everyone. I am pleased to report strong revenue and earnings outperformance in Q3. Starting with the top line. Total revenue was $217 million, an increase of 11% year-over-year and significantly outpaced our Q3 expectations. Our total revenue growth was highlighted by a 31% year-over-year increase in subscription revenue to $114 million, reflective of both solid double-digit growth in term software licenses and an accelerating contribution of SaaS revenue.Our execution was strong as large software deal close rates improved sequentially, and we delivered against our largest term subscription renewal quarter of the fiscal year. This execution resulted in term software deals over $100,000, up 25% year-over-year, driven by increases in both average selling price and deal volume. Q3 perpetual license revenue was $15 million, as these perpetual licenses are generally sold in limited verticals and geographies. At the current run rate, we believe that the headwinds to our reported total revenue growth for perpetual license sales are normalizing as we exit the current fiscal year.Q3 customer support revenue, which includes support for both our term-based and perpetual software licenses was $77 million, down just 1% year-over-year. Q3 and fiscal year '24 continued to benefit from the continued trend of fewer conversions of perpetual support contracts to term software licenses. Year-to-date, customer support revenue from perpetual licenses represents 54% of total customer support with the balance coming from term software and related arrangements. This compares to approximately 60% in fiscal year '23 and 75% in fiscal year '22. At this trajectory, we expect customer support revenue from term-based software licenses to become the majority of our customer support revenue next fiscal year.Moving from revenue results to ARR. Q3 ARR was $752 million, representing 17% year-over-year growth and continues to reflect the underlying strength of our business when our revenue is presented on an annualized basis. Subscription ARR, which includes term-based software arrangements and SaaS contracts, increased 29% year-over-year to $571 million. Within subscription, SaaS ARR grew 77% year-over-year to $152 million driven by new customer acquisitions and strong expansion with existing customers. Q3 SaaS net dollar retention rate, or NRR, was a healthy 125%.Now, I'll discuss expenses and profitability. Fiscal Q3 gross margins increased 90 basis points sequentially to 82.9% and includes continued improvement in our SaaS gross margins. Fiscal Q3 operating expenses were $132 million, up 9% year-over-year, reflecting the impact of our planned go-to-market investments throughout fiscal year 2024 and higher marketing spend during the quarter, including our SHIFT event in New York City. Overall, operating expenses as a percentage of total revenue was 61%, representing 100 basis points of leverage year-over-year, consistent with our objective to manage expenses relative to revenue results.We ended the quarter with a global headcount of approximately 2,900 employees, flat sequentially and up 3% year-over-year. Our current headcount balance includes additional inside sales teams, renewal and related customer success teams to support the customer journey and our accelerating velocity sales motion. Non-GAAP EBIT for Q3 increased 21% year-over-year to $47 million and non-GAAP EBIT margins increased 180 basis points year-over-year to 21.5%.Moving to some key balance sheet and cash flow metrics. We ended the quarter with no debt and $284 million in cash, of which $88 million was in the United States. Our Q3 free cash flow grew 45% year-over-year to $43 million. Through the first 3 quarters of the fiscal year, we generated $121 million of free cash flow, an increase of 20% year-on-year. The biggest drivers of free cash flow or SaaS deferred revenue and the strength of our software subscription renewals would typically include upfront payment on multiyear contracts. In Q3, we repurchased $51 million of stock under our repurchase program, resulting in year-to-date repurchases totaling $134 million, representing 111% of year-to-date free cash flow.Now, I'll discuss our outlook for fiscal Q4 and the full fiscal year '24. All of the following guidance metrics are based on current foreign currency exchange rates. For fiscal Q4, we expect subscription revenue, which includes both the software portion of term-based licenses and SaaS to be $111 million to $115 million. This represents 20% year-over-year growth at the midpoint. This Q4 subscription revenue outlook reflects continued momentum in our new customer and expansion business, but a smaller renewal pool in fiscal Q4 relative to Q3. As a result, we expect total revenue to be $210 million to $214 million. At these revenue levels, we expect Q4 consolidated gross margins to be in the range of 81% to 82% and EBIT margins in the range of 20% to 21%.We continue to execute some foundational go-to-market changes, which include amplifying our discrete focus on our land-and-expand opportunities, scaling our motion to secure our growing subscription renewal base and investing to capitalize on our fiscal year 2025 growth objectives. These investments are reflected in the range of our Q4 margin guidance. Our projected diluted share count for fiscal Q4 is approximately 44.5 million shares.Now, I want to give an updated outlook on the full fiscal year '24, which includes, once again, raising our total revenue and total ARR expectations for the full year. We expect fiscal year 2024 total ARR growth of 15% year-over-year, which reflects a 100-basis point increase over our prior guidance. We now expect subscription ARR, which includes term-based licenses and SaaS to increase 25% year-over-year and reflects a similar 100 basis point increase over our prior guidance.From a revenue perspective, we now expect subscription revenue to be in the range of $420 million to $424 million, growing 21% year-over-year at the midpoint, reflecting the continued momentum in our business and is a $9 million increase at the midpoint compared to our prior guidance. At these revenue levels, subscription revenue will exceed over 50% of our total revenues for the full year. We expect total revenue to be in the range of $826 million to $830 million, reflecting an $11 million increase at the midpoint compared to our prior guidance. Our improved fiscal year '24 total revenue outlook reflects the seasonally stronger subscription software trends that we usually experience in the second half of the fiscal year, combined with the ongoing momentum of our SaaS offerings.Moving to full year fiscal '24 margin, EBIT and cash flow outlook. We continue to expect gross margins of 82% to 83% and non-GAAP EBIT margin expansion of 50 to 100 basis points year-over-year. We are also maintaining our expected full year free cash flow of $170 million. As of December 31, we had $122 million remaining on our existing share repurchase authorization, and we expect to continue with our existing practice of repurchasing at least 75% of our annual free cash flows. Year-to-date, we are pacing well ahead of this target, and we intend to continue the share repurchase momentum during the current quarter. For details and trends on all of our key metrics, please take time to review our investor deck contained on the Investor Relations section of our website.Operator, you can now open the line for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Aaron Rakers of Wells Fargo.

[Aaron Rakers, analyst]

Congrats on the good quarter. I guess the first question, and I appreciate that you're not going to give guidance looking out into fiscal 2025. But I'm just curious with the momentum you're seeing in subscription and obviously the SaaS business as well. How do you guys start to think about seasonality? And in particular, thinking about the March quarter? And I guess I'll layer into that; how do we think about the customer support growth as that the rate of decline start to ease and maybe we return to growth as we look into next fiscal year?

[Gary Merrill, executive]

Hey Aaron, good morning, it's Gary. Nice to hear from you, and I'll start off at a couple of different things. Maybe I'll start with the Q4 piece of it, the current March quarter perspective. So Q3, just looking back at the quarter we just finished, was a really significant quarter for us by our own measures. It's one of the best, if not the best quarter we've ever had. And we're really starting to see that cyber is changing the way that people are buying so some of the trends to be solved during that quarter gave us the confidence to raise both our Q4 and full year numbers. And as you mentioned about specifically subscription revenue, our guidance is less about 20% growth year-over-year at the midpoint. And what we're seeing and what we're expecting in fiscal Q4 is continued momentum in that lane and expand motion. Also the SaaS revenue that we're now generating is a tailwind and provides more predictability to our P&L. Those together, we'll see a slightly smaller renewal opportunity in Fiscal Q4 relative to Q3. So that's also reflected into our guidance as fiscal Q3 had the largest renewable we've ever had in our history. So we think those trends, along with continued execution and some really good acceleration in our partner ecosystem is really going to help us set the foundation for next year. What's also helping, as you mentioned, relative to our total revenue is what's happening in the customer support revenue and what you see there is that the declines year-over-year are starting to be mitigated and now down into the low single digits. Some of that's reflective of fewer conversions that I mentioned on last call. We continue to see fewer conversions that then eliminate some of the headwinds we see in support. So some of those headwinds will get mitigated going into next fiscal year, which would also provide some of that continued momentum we'll see.

[Aaron Rakers, analyst]

Yes. Gary, I appreciate that. Let me maybe kind of double click on that and just ask more succinctly. Do you think the customer support revenue can turn to growth as we look into next fiscal year?

[Gary Merrill, executive]

No, I would say, as I look in the next fiscal year, I would say flat to slightly down is what I would expect on a full year basis, Aaron, is what I would expect at this point. I think by the end of next fiscal year, the term component like the maintenance and support piece from our term licenses will become the majority of that customer support, but I think that will take us into the back half of next year, which means that on a full year basis will slightly be probably low single digits down.

[Aaron Rakers, analyst]

Yes, that's helpful. And then the final quick question. On the term side, can you just talk about what you're seeing from a term perspective, the term length of the deals you're engaged with? It sounds like large deals have improved; the macro might have eased. So just kind of any updated thoughts on what you're seeing, any kind of term lengths or term compression dynamics?

[Gary Merrill, executive]

Yes, absolutely. So what we continue to see now is stabilization in our term length. Last quarter, we saw, I'd say, the first quarter stabilization. This quarter, we saw another quarter of stabilization. On the subscription side, our average term is still rounding to about 2 years, but that stabilization, which is also demonstrated by good execution, but also demand for our SaaS resilient products is also giving a little more predictability in there. The other piece there and that's also critical to this is how we align with the parking ecosystem, right? Those bigger deals and larger transformational projects are tied with some of the new modern partner ecosystem, whether it be hyperscalers or others and they also provide some foundational support for keeping that term like healthy.

[Sanjay Mirchandani, executive]

And hey Aaron, it's Sanjay. I'll just add one more point. As customers start really moving and pivoting to the hybrid model and hybrid cloud workloads, our platform allows them to do that mitigation and move their workloads and have the same technology support both in the cloud and data centric. So we're seeing that as well. That's helping as well.

[Operator]

Your next question comes from the line of Howard Ma with Guggenheim Securities.

[Howard Ma, analyst]

Great, thanks and impressive results. I have a question, first for Sanjay. Sanjay, if you were to dissect the outperformance in the quarter, I guess, between the general spending environment may be improving. It looks like it might be and secular tailwinds of consolidating or increasing infrastructure and security budgets, that versus your own internal execution, new product initiatives and go-to-market execution and I understand it might be hard to separate the internal from external, but if you were to force the stack rank the internal versus external, I'm curious what your thoughts would be?

[Sanjay Mirchandani, executive]

Well, I would say it's probably 75% for this quarter in the past, 75% internally. And I would say that because really Howard, Gary touched on this, our own business transformation, moving our installed base of customers and our new customers into a more ratable format as well as a subscription-oriented format is actually working. Our subscription renewal tailwind is kicking in. So the stuff that was a headwind for us 2, 3 years ago is actually becoming a nice tailwind and this last quarter was testimony to that. We've talked about our execution internally, really aligning our sales force, our marketing campaigns, our demand generation campaigns, all the things that you'd expect to avail the opportunity in front of us around cyber. So that's kicking in nicely as well and green shoots on some of the demand we're seeing on cyber resilience. And the third is the new platform, the platform, the actual Commvault Cloud by Metallic AI platform that we're feeding into customers at this point, technologies like clean recovery are really beginning to get customers' attention. So it's not perfect math, but I'd say 75% of what we're seeing is a combination of what we're doing and good execution alongside the fact that certainly we're solving a really hard problem for customers. Cyber threats are real and what we're able to do for them is meaningful.

[Howard Ma, analyst]

Okay, that's really good color, and thank you quantifying that Sanjay. I have a follow-up for Gary. Gary, with the recent launch of Commvault Cloud and these new security bundles, can you give us some numbers around initial traction in cross-selling these security modules to existing customers as well as adoption by net new logos, thanks?

[Gary Merrill, executive]

Yes. Morning Howard. So a couple of things. As you know, our announcements related to our new platform, Commvault Cloud, just hit the market just a couple of months ago, okay? So where we're focused now is on demand gen. So we're starting to see some of the early benefits that we started to see in our pipeline and in the funnel that we're creating, that's also reflected in our Q4 outlook, okay? What this will do is it's going to give us an amazing opportunity for expansion as well. None of that is reflected in our results for Q3. So our results in Q3 as Sanjay said, was about executing against the pipeline we had, strong close rates that accelerated quarter-on-quarter. And what we're seeing now is building that demand gen for next fiscal year and the ability to cross-sell through our installed base. We finally have a platform that makes the buying process for our customers easy between software and SaaS and facilitates that expansion opportunity to go from our foundational model that we have today, all the way through the cyber-resilience offering that we've announced.

[Sanjay Mirchandani, executive]

Yes and Howard, Sanjay here, quite honestly it's still early to quantify in dollar terms the impact, but we're very positive about it from what we see as the pipeline builds. I'll just give you an anecdotal point of view. The number of conversations I had with security teams and CISOs since we launched on November 8 has been unprecedented. We've seen really deep dives on the fact that what we call shift right, our ability to really take the customer journey and make sure that protection and then resilience are at the core of how they think about cyber recovery is key. And we're having deep conversations, proof of concepts more than we ever have because we've been able to really bring to light the completeness of the platform.

[Operator]

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

[James Fish, analyst]

Hey, guys. Great quarter. Just building off the last Q that we've asked around cyber resiliency strength, look I know it can be hard to really parse out, but what percentage of customers are buying into cybersecurity use cases at this point or what's really the exposure to cyber budgets rather than kind of the traditional backup and recovery, how often is a Chief Information Security Officer, for example, in the room, as you guys are in that final pitch?

[Sanjay Mirchandani, executive]

Hey James, its Sanjay. I just sort of touched on that in the previous analyst's question. We're seeing a lot of security conversations. And by the way, this wasn't our first store in the security. We've got security in our product for a long time. Last June, we announced a series of innovations, and then we followed that up in November, and we continue to follow that up now. Even before cyber resilience, data protection without information security was pointless, there was nothing there. So, we have security built into our overall data protection platform, which we've extended end-to-end with our cyber resilience capabilities.Let me give you an example. And I've said this for a long time, data protection and data security are emerging, and I think they've officially come together. So, if you're recovering from a breach or a threat or an attack and you're recovering data, you can't just blindly bring data back. You have to make sure that you're threat-scanning that data for any vulnerability that may have been added since you backed up okay, or new in the environment. So, threat scanning, which was a typical security shift left capability is completely integrated with recovery capabilities. So, that's what we've been doing. And so, it's very hard to sort of segregate and say, this is security versus this is protection, it is resilient. And we've been doing this for a while. I mean, yes, customers may talk to us and say, hey, we want to talk about data protection, but it's really with light of the fact that the threat that they protect against the cyber. So, it's all one platform one capability.

[James Fish, analyst]

Makes sense, Sanjay. I appreciate that. And then, Gary, you had mentioned, you guys are looking to invest on the go-to-market side. Just can you elaborate a little bit more on the details there? How many heads should we be looking for you guys to add in this upcoming quarter in order to hit those objectives? Is it going to be mainly on the inside sales team or looking more at kind of field, like that?

[Gary Merrill, executive]

Yes. Thanks, Jim. Yes, in some of my prepared remarks, I like to talk a little about investment. So, I think foundational to what Sanjay and I have always talked about, it's about profitable and responsible growth. So that's all, that is our foundation. But as I look out into next year, some of the investments that we're starting to make is to really be able to capitalize on the growth opportunity that's in front of us. We're seeing the world of cyber resilience come together to give us this amazing opportunity to hopefully accelerate growth. And with that it does require some level of investment, okay. And it's more about making sure that we continue to generate the demand around cyber resilience, make sure that we are targeting the right buyers and the decision makers that can help drive the decisions related to cyber resilience. And most importantly, continue to make sure we have the right resources in campaign around accelerating our SaaS model. What some of these investments require in that alignment, especially into the partner ecosystem, okay. So, if I look at the partner ecosystem, there's really three key pieces that we're focused on. Number one is HyperScaler's. We're starting to see some great acceleration with HyperScaler's. We did the largest amount of revenue ever through our marketplace this quarter, and we want to capitalize on that momentum. It's also building out the MSP route, especially with our SaaS-focused products. And third is a lot of these large transformational cyber projects are tightly integrated with GSI to align this. So, if you try to think about some of the areas that are important to us to capitalize on the growth, they are the key areas we're focused on.

[Operator]

Your next question comes from the line of Rudy Kessinger with DA Davidson.

[Rudy Kessinger, analyst]

I'll add my congrats to what looks like a great quarter, some really good numbers here. On SaaS, growth reaccelerated last quarter a bit sustained this quarter at 77% SaaS ARR growth. The net new SaaS ARR is just really impressive. Could you talk about just when you look at the growth in Metallic quarter-over-quarter, just what percent of that new SaaS ARR is coming from cross-sell versus new customers? And also, do you have any conversions in there yet? Or is it still mostly true organic ARR growth?

[Gary Merrill, executive]

One of the key things that we look at to related to SaaS is how we look at sequentially from an ARR basis. And hitting the $152 million ARR, the sequential growth we had from last quarter this quarter was no high volume. So, in the numerical, we had the highest sequential increase in SaaS ARR, which just shows to the acceleration we're seeing in the as-a-service delivery model. And it's a combination of two things, as you highlighted. One is, I'll call our land-and-expand new business and we're still seeing the majority of that from upsell, meaning more of the same workloads are primary workloads. We're starting to see the cross-sell start to commence, but it still be relatively less than the additional workloads of similar functionality.Now, introducing with the new cyber resilience offerings, we're setting ourselves up for that cross-sell opportunity as we get in the next fiscal year. So, we look to the next fiscal year for that. But the key driver on the 125% NRR has been up-sell. The other key piece though is the maturing renewal cycle and driving to really strong growth renewal. So, we're doing a very good job of now maturing and have a fully mature renewal cycle as well. So, those pieces helped driving that momentum.

[Sanjay Mirchandani, executive]

I know you didn't directly ask the question, but as part of our land, our new customer acquisition momentum with our SaaS workloads is growing in the hundreds every quarter. And the cross-sell of software with SaaS is actually quite something we appreciate and are working on because as customers -- which is also a testament to our single platform strategy as customers move to the hyper cloud. So, they start with one workload and then quickly move into a data center-based workload because you may have products that you want to back up in a different way in the data center. So, not only do we look at cross-sell within the SaaS offers, but also cross-selling between software and SaaS. And having a singular platform with the capabilities we have, enables that hybrid journey for customers, so they can start anywhere either in the cloud or on-premise and then go both ways. And that's a key differentiator for us.

[Gary Merrill, executive]

So Rudy, that's all true growth. There's one last piece of your question I wanted to finish on is that, what we're seeing in Metallic is not canalizing over from converting our installed base. You asked that question specifically, and we're not. That's not part of the current play or what's driving the business. This is all about net new business.

[Rudy Kessinger, analyst]

Great. That's all very helpful color. I guess just one quick last one on SaaS. Again, you mentioned the record net new SaaS ARR in Q3. If I look back last year at seasonality, your net new Metallic ARR in Q4 was a good step-up from Q3. Should we expect to see that play out again this year? I know you're not guiding specifically to SaaS ARR. But just given your months into the quarter, how should we expect net new SaaS ARR to come in for the March quarter versus December?

[Gary Merrill, executive]

I think the seasonality you saw last year from fiscal Q3 to Q4 is fair for something like we would expect for this year. I think we saw roughly 15-or-so million sequential growth. I think sometimes think that or slightly more, it's what our objective would be is to keep that momentum going. We have a strong pipeline going into the quarter, and we're seeing our close rates continue to improve as well. So, we're optimistic about where we're going to land for the fiscal year.

[Sanjay Mirchandani, executive]

We're not calling it but we're trending in.

[Operator]

Your next question comes from the line of Eric Martinuzzi with Lake Street.

[Eric Martinuzzi, analyst]

Yes. I noticed a nice pickup on the Americas region, up 16% year-on-year. Was that kind of broad-based across verticals? Or was there any particular verticals that stood out for you?

[Gary Merrill, executive]

Our Americas had a really strong quarter. From a total perspective, our Americas business was up 16% year-over-year, really driven by that subscription revenue as well. Just the total subscription revenue in the Americas was up 43% year-over-year. And what we're seeing is really strong traction on some of the larger deals. The larger deals on renewals as well as kind of larger land expand deals. Our big deals what we say kind of those term software deals over $100,000, we're up almost 50% year-over-year. So it's all tied to driving the cyber resilience message and making sure that we are helping our customers solve those difficult problems. Not vertical specific. Last quarter, we talked a lot about that. This quarter, it was more broad-based across the vertical stream tied to executing against the renewal stream and the larger deals.

[Eric Martinuzzi, analyst]

And then the buyback program, I know you haven't given us a view for FY 25, but you've been relatively consistent for at least the past couple of years about this greater than 75% of the annual free cash flow. Is that the intent going forward here or are you going to revisit that when you offset the current plan?

[Gary Merrill, executive]

Yes. So our current guidance will continue to hold. We believe right now that our buybacks are a key part of our responsible growth strategy and our publicly stated guidance of at least 75% of free cash flow is a good modeling trend. As you can kind of tell, through the 9 months, we're well ahead of that. We're north of 100% of free cash flow because we're opportunistic also in the market, and we see the value that we have as a company and our ability to continue to drive shareholder value.

[Operator]

Your next question comes from the line of Jason Ader with William Blair.

[Jason Ader, analyst]

I just wanted to ask about the revenue growth outlook. I know you've talked about, I think, what, 6% to 7% growth CAGR from the 2021 Analyst Day. I'm not sure, maybe you've updated that, but just wanted to get a sense of whether you are reiterating that. Do you think it could be higher and then more specifically, as we think about 2025, FY '25, without pinning you down on guidance right now, do you think the revenue growth could be higher in '25 than '24?

[Gary Merrill, executive]

Hey Jason, it's Gary. Good morning. I'll get a couple of these claims. So first, revenue growth for us is ultimately an output of what we're seeing from an ARR perspective. So let me start there, and we're seeing really strong growth. If you look at our ARR growth of 17% this quarter is really strong, and we're seeing that across all of our corporate businesses. Our Q4 guidance implies that we'll end up this fiscal year on the top line, roughly in that 6% revenue growth. We have an amazing opportunity to accelerate as we move forward. Obviously, we have not given guidance for FY '25 yet, clearly our expectation that FY '25 growth will be higher than FY '24. And as we start to work towards our next call, next quarter, we'll give a little more clarity on full year FY '24 results, but most importantly is we see the opportunity in the market. That's key. So as we see the opportunity in the market, we can continue to build on momentum from the quarter we just had. And clearly, where our expectation is that our growth next year will be higher than this year on the top line.

[Jason Ader, analyst]

And then another one for you Gary? Can you give us a sense of how much revenue in a given quarter is actually effectively, let's call it, in the bag kind of day one of the quarter in terms of -- and that would include renewals, let's just assume you're going to get the renewal there. I know you don't always get 100%, but let's just assume you're going to get the renewal and then committed contracts, which, I guess, would be support and SaaS, so those two things combined, how much of your revenue in a given quarter was actually coming from those sources today?

[Gary Merrill, executive]

See Jason, we don't quantify specifically. I'll say with the contractual revenue we have in the bag on Q1 or day one of the quarter. Though as you look at a couple of key pieces, we disclose our SaaS ARR so you can take our SaaS ARR and divide by roughly four and that's almost guaranteed to get that piece. And the other piece is customer support, right? That's very predictable. So when you look at just those two pieces, SaaS and customer support, you have a very strong starting point to the quarter. It's how we see it. The renewal piece then we just drive leverage and the incremental that goes over our [indiscernible] business. I think where I'll close is that on a relative basis, each quarter becomes more and more predictable than the previous with some of these foundational pieces and that's what we kind of focus is on increasing predictability sequentially as each quarter goes.

[Jason Ader, analyst]

Let me just ask this in a slightly different way. I don't know if you're going to answer it, but I'm going to try. Of your $100,000-plus deals today, how much are actual renewals versus basically new business or upsell business?

[Gary Merrill, executive]

Yes. Those are healthy contributions. We can't get into specifics. We're not going to get into those specifics, but they're both very healthy contributions.

[Jason Ader, analyst]

And it's obviously a lot higher today than it was a couple of quarters ago?

[Gary Merrill, executive]

Yes, that's right.

[Operator]

Your next question comes from the line of Tom Blakey with KeyBanc Capital Markets.

[Thomas Blakey, analyst]

Great execution here and solid results. Congratulations. Just want to maybe piggyback on Jason there on the potential renewal opportunity. You were pretty clear about saying that Fiscal 3Q we just passed was a very large opportunity for the company. I think the one of the largest I think Gary said in that Fiscal 4Q would be lower. Maybe, Jason, literally just asked us, but will the renewal opportunity that it seems like you have a solid grasp on. Will the renewal opportunity in Fiscal 25 be bigger or the same as Fiscal 24.

[Gary Merrill, executive]

Got it. Hey Tom, it's Gary and I'll jump in and let me give you a little maybe just foundational pieces that will help out to FY 25. Fiscal Q3 fiscally our largest because it's tied to all the candor and right deals we've done over periods and fiscal Q4 will be modestly lower. So not significantly, but lower. So that means that the signality of the second half is always stronger than the first half of any fiscal year. And that trend, as I look into next year, will continue. On an overall basis, I would expect the renewal population next year to be larger than the rental populate this year, but not by the same amount that we saw this year, right? This year had a larger sequential year-over-year. Next will be larger, but to a much lesser extent.

[Thomas Blakey, analyst]

Much less from Fiscal '22 to Fiscal '24, but higher than Fiscal '24. That's helpful. Maybe in the context of the expanding opportunity set that you have here with regard to cyber resilience we agree with you in terms of the convergence of data recovery and data security last couple of years here. Talk to us about like maybe incentives and the capacity that you have internally to have a Commvault in terms of attacking the opportunities you climb up to the CISO kind of suite there.

[Gary Merrill, executive]

Sorry, what was the last part of your question?

[Thomas Blakey, analyst]

So in addition to incentives what kind of capacity do you have or need to be continued build out to kind of approach the CISO suite in terms of discussions?

[Gary Merrill, executive]

Incentives, there we continue to fine-tune that as needed obviously, within the comp plans, but really what's more important is the investment and focus we've put around enabling our sales force and our ecosystem on our new capabilities around cyber resilience, kind of unprecedented how much time and effort we put and cost we've put into getting that right and that's an ongoing journey. We've also brought in some really, really seasoned security, we call them field CTOs to really enable our customer conversations alongside our field. We've got some specialists as well that understand security inside now, practitioners. We've also announced recently at our Cyber Resilience Board, which is a board of absolute luminaries in the field of cyber security headed by Melissa Hathway who was an adviser to presidential administrations on security and cyber security.So we're really amping not just the product, but also the capabilities, the thought leadership around it and enablement within that. So there's a lot of work going on. And yes, and I'd be wrong for me to forget. We've also -- as part of the platform, it's a subtlety, but it's an important piece, which is we've actually gone -- we've shifted left. In other words, we have integrated and continue to integrate and continue to increase the ecosystem of connections into what we call the identifying defend, the perimeter security costs and making sure that the technology our customers use to defend the perimeter and manage it is something we integrate with because it makes both sides the recovery and resilience side, which we do and the defendant identify sites that our partners do and working together, we make the customer safer. And so there's a lot of work that we've been at. We announced it all in November, but we've been at this thing for a long, long time. And lots of lots to do. Lots to do. Everybody we hire. We try and bring in with the security backup quite simple, as simple as a litmus test.

[Thomas Blakey, analyst]

The follow-up there would just be with regarding to the security budgets at firms who have had been ever expanding probably for the last decade or more. Do you envision that this is -- your initial conversations are along those lines on TCO and your preamble, is this a Commvault kind of like taking wallet share and consolidating vendors? Or is this more of a -- an who would those vendors see -- or is this more just a continued expansion?

[Sanjay Mirchandani, executive]

I think, Tom, I think the fact that the two pieces that have traditionally been separate are coming together from a solution point of view, like our platform. Just we've seen customers at the table with the IT organization, the infrastructure team as well as the security. And they're working together rightfully so to solve complex issue a hard problem. And I think they quite -- we see the budget sort of munch together in many customers to say we -- this is not just a data protection piece of our data security piece, it has to be together. So I think we're actually seeing efficiencies for customers with the approach we're taking. It does make it easier because you're not -- you don't have internal sort of friction inside a customer.

[Thomas Blakey, analyst]

Okay. Yes, that's helpful. And just one very quick one, sorry to have four questions there. But the gross margin guidance was impressive, Gary. Just maybe talk about the moving pieces there, specifically with regard to metallic and the cloud scaling here. That would be helpful and thank you guys.

[Gary Merrill, executive]

Yes, for sure. And I can wrap up with that question with you. So from a gross margin perspective, getting stability in the gross margin is important, and there's two pieces. One is, when you see acceleration in our subscription and a chunk of that drive subscription term software, they're very high gross margins. So when we get good renewal and good land expand growth, we're going to see gross margin momentum. The key piece though, to our gross margin is getting stability and leverage on our SaaS gross margins, okay? We're working very clearly towards our goal of getting into that 70%-plus range of gross margin. A year ago, we were in the 50s, and we're now well on our way towards that objective over time of getting to 70% plus. And you're starting to see the leverage that we're getting right now on driving improvements in the gross margin on that.

[Thomas Blakey, analyst]

Okay. Thanks guys. Great quarter.

[Gary Merrill, executive]

Thank you.

[Operator]

My apologies. Your next question comes from the line of Aaron Rakers of Wells Fargo.

[Aaron Rakers, analyst]

Thanks, guys. Thanks for the quick follow-up. I'll be brief here. Obviously, a lot of momentum around the cybersecurity and the resilience attributes of the business. I'm just curious, like architecturally, as we think about the data center and what's evolving overall around AI. Are you starting to see any engagements with customers that you could succinctly say that AI is actually driving this kind of change of sentiment or investment cycle for your business as enterprises kind of scrubbed through and think about their data and how they're going to leverage that more from an AI perspective going forward?

[Gary Merrill, executive]

I mean the short answer is you can't have a conversation without AI coming up. That's just the fact. Now what we've done is, Aaron, we've got a -- I'll turn your question on its head a little bit. And what we've done is look at what we can do for customers that make their lives better because of AI. Now we've had AI in our technology for many years, but mostly in machine learning type and automation type scenarios. Now with the newer generation of AI, our first foray is really delivering value, not just AI watching that technology, but truly delivering value falls into three primary buckets. One is operational scale and resilience, giving them the ability to really work with large volumes of data with deep degrees of automation, okay? And so the operational AI just enables that, and that's in the product today.The second is really threat and risk management and assessment. So with the number of risks, the threats and the volume of data that's been written and restored, AI can do a wonderful job helping customers really who the anomaly to fashion, really do the cyber get real side or resilient. So we've built a lot of that into the product. And the one that I think is getting great traction, which I think has immense value is predictive recovery. The complexity of recovering data with absolutely solid clean backups for a customer who's just been reached is very complex because of the sophistication of the breaches and the time span between entry and payload. And so, we're using AI to help customers really get a correct starting point and then applying AI across a cleanroom recovery scenario to really help customers truly be resilient and recovery. At the end of the day, that's what matters. And so, these are the three -- I'm over simplifying it, but these are the three big buckets under which we've applied AI enough in the first arbiter of our technology, and it's continuing. We have a very written robust road map. And everything I talked about exists. So there's no AI washing it which there's a lot going on right now.And we have to be very -- we take a very conservative approach around this because at the end of the day, it's mission-critical data that we're working with for our customers.

[Operator]

This concludes the question-and-answer session. I will turn the call over to Mike Melnyk for closing remarks.

[Michael Melnyk, executive]

Thanks, everyone, for joining this morning. As a reminder, the Investor Relations website has a presentation summarizing our key KPIs. Feel free to reach out to me during the quarter with any questions. Thanks very much.

[Sanjay Mirchandani, executive]

Thank you.

[Operator]

This concludes today's conference call. We thank you for joining. You may now disconnect your lines.