CVLT Q3 Deep Dive: Cyber Resilience Growth Offsets Margin Pressures Amid Cloud Shift

Data protection software company Commvault (NASDAQ:CVLT) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 18.4% year on year to $276.2 million. The company expects next quarter’s revenue to be around $299 million, close to analysts’ estimates. Its non-GAAP profit of $0.91 per share was 3.3% below analysts’ consensus estimates.

Is now the time to buy CVLT? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Commvault’s third quarter saw solid momentum in revenue, but the market responded negatively, likely reflecting concerns over profit margins and earnings below Wall Street’s expectations. Management attributed the period’s growth to accelerated demand for its Cyber Resilience platform, especially among hybrid cloud customers, and highlighted strong adoption of data and identity security offerings. CEO Sanjay Mirchandani noted, “We achieved $1 billion in total ARR two quarters earlier than our original target,” pointing to robust traction in both SaaS and subscription businesses. However, operating margin contraction and higher investments impacted profitability, as the company prioritized capturing share in a rapidly evolving data protection landscape.

Looking forward, Commvault’s guidance is shaped by continued investment in SaaS capabilities, product innovation, and a focus on hybrid cloud flexibility for enterprise customers. Management anticipates further growth from identity protection and cloud-native offerings, expecting increased adoption as organizations address complex cyber threats and regulatory requirements. CFO Jennifer DiRico emphasized, “2026 is going to be a year of investment, and we’re going to continue on that path because all signals say that the market has not changed.” As the company works to scale its platform, integration of recent acquisitions and enhanced cross-sell opportunities are expected to drive recurring revenue, while the shift to shorter-term contracts and margin dynamics remain areas of attention.

Key Insights from Management’s Remarks

Management cited strong demand for Commvault’s cloud-based cyber resilience platform, increased adoption of SaaS solutions, and ongoing product innovation as key contributors to the quarter’s performance, while also acknowledging the impact of gross margin pressures due to business mix shifts.

• Cyber resilience platform momentum: The adoption of Commvault’s Cyber Resilience offerings grew significantly, with identity and data security solutions representing nearly 40% of new annual recurring revenue. Management saw robust demand from organizations seeking to enhance protection against evolving cyber threats, especially in hybrid cloud environments.
• SaaS growth accelerates: SaaS annual recurring revenue increased 56%, with notable customer wins in financial services and healthcare. The company’s fastest-growing SaaS product, focused on restoring identity systems like Active Directory, was highlighted by both new customer additions and expansion within existing accounts.
• Cloud migration drives demand: Customers continued migrating data to the cloud, supported by Commvault’s Clumio portfolio for AWS and integrations with major hyperscalers. This trend was reinforced by new partnerships and cost-saving implementations, such as a 40% cost reduction achieved for a major financial institution.
• Shorter contract durations: Management acknowledged a shift toward shorter-term software contracts, as customers sought flexibility during their transition to the cloud. While this impacted average deal size, the company reported strong overall transaction volume and customer wins, especially for deals over $100,000.
• Margin pressures from business mix: The company’s increasing SaaS mix, along with integration costs from recent acquisitions, contributed to lower gross and operating margins. Management stressed that ongoing investments in product development and go-to-market capabilities were necessary to maintain leadership in a competitive landscape.

Drivers of Future Performance

Commvault’s outlook is driven by continued SaaS adoption, ongoing product innovation, and increased investment to capture share in the expanding cyber resilience market.

• SaaS and subscription expansion: Management expects the rapid shift toward SaaS and subscription models to persist, with approximately 60% of new annual recurring revenue projected to come from SaaS in the coming quarters. This transition supports recurring revenue growth but may pressure gross margins due to the different profitability profile of SaaS versus traditional software.
• Investment in innovation and integration: The company plans to maintain higher investment levels in product development, including the integration of recent acquisitions like Satori Cyber. These investments are intended to enhance the platform’s capabilities for identity protection, AI data security, and automated resilience, positioning Commvault for long-term share gains.
• Contract duration and margin dynamics: Management highlighted that customer preference for shorter contract durations is likely to continue as organizations weigh timing and flexibility in their cloud migrations. This trend, combined with a greater SaaS mix, is expected to weigh on operating margins despite steady transaction volume and customer growth.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will focus on (1) sustained growth in SaaS annual recurring revenue as cloud adoption continues, (2) the margin impact of ongoing investments and business mix changes, and (3) execution of cross-sell and upsell strategies, particularly in identity and data security offerings. The integration of recent acquisitions and the pace of cloud migration across the customer base will also serve as important indicators of future performance.

Commvault currently trades at $146.95, down from $174.16 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free for active Edge members).

Stocks That Trumped Tariffs

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.