CVLT - NASDAQ

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 CEO and Gary Merrill, Commvault 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 that are of 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 these forward-looking statements. Commvault does not assume any obligation to update these statements. During this call, Commvault's financial results are presented on a non-GAAP basis. A reconciliation between 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?

Thank you, Mike. Good morning and thanks 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 resilience. 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 three quarters of a billion dollars. 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, and 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 would suffice. It's just a matter of time until the bad actors get in. So rather than just looking at prevention, CIOs and CISOs alike are putting a heavy emphasis on 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 the 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 on 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 unnatural 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 cyber security and AI companies like Avira, Darktrace, Databricks, Microsoft Sentinel and Palo Alto Networks among others. I'm pleased to share that customers, partners, and industry analysts have been raving about. For instance, one customer told analyst firm Enterprise Strategy Group, quote, “We're 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 night”. IDC Research Vice President Phil Goodwin said, “This announcement realigns Commvault's products to meet customer preferences and sets the company on a path to be very competitive in cyber resilience”. And we continue to introduce major innovations in the platform that solve 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 clean room 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 include a large state agency that detected security gaps with its incumbent vendor. This new customer turned to Commvault for immutable Air Gap ransomware protection, anomaly detection, and an improved cyber resilience posture. And we also helped the Fortune 500 Capital Equipment Company eliminate its patchwork of vendors and move their workloads onto our unified platform. This allowed them to modernize and improve their cyber resilience posture, better protecting them from ransomware with a lower total cost of ownership. To expand our 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 shape 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. We're two months away from closing our fiscal year and I couldn't be more excited about our momentum as we approach fiscal year 2025. With that, I'll turn it over to Gary to discuss our results. Gary?

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 2024 continue 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 a balance coming from term software and related arrangements. This compares to approximately 60% in fiscal year 2023 and 75% in fiscal year 2022. 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 acquisition 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, last 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 three 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 were SaaS deferred revenue and the strength of our software subscription renewals, which typically include upfront payment on multi-year 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 2024. 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 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 pull in fiscal Q4 relative to Q3. As a result, we expect total revenue to be $210 to $214 million. At these revenue levels, we expect Q4 consolidated growth 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 2024, 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 2024 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 2024 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 flows of $170 million. As of December 31st, 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.

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

Thanks guys, for taking the question and 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 starts to, the rate of decline starts to ease and maybe we return to growth as we look into next fiscal year?

Hey, Aaron. Good morning. It's Gary. Nice to hear from you. I'll start off. You asked 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. We're really starting to see that cyber is changing the way that people are buying. Some of the trend that we saw during that quarter gave us the confidence to raise both our Q4 and full year numbers. As you mentioned about specifically subscription revenue, our guide is less than about 20% growth year-over-year at the midpoint. What we're seeing and what we're expecting in fiscal Q4 is continued momentum in that land 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 will see a slightly smaller renewal opportunity in fiscal Q4 relative to Q3. That's also reflected into our guidance as fiscal Q3 had the largest renewal pool we've ever had in our history. 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 get 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.

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?

No, I would say, as I look into 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, we'll slightly be kind of probably low single digits down.

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?

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 stabilization. On the subscription side, our average term is still rounding to about two years. But that stabilization, which is also demonstrated by good execution, but also demand for our cyber-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 partner ecosystem. 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 length healthy.

Hey, Aaron and 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 them, both in the cloud and data-centric. So we're seeing that as well. That's helping as well.

Thanks, guys.

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

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 maybe improving, it looks like it might be an in secular tailwind of a consolidating or increasing infrastructure and security budget. That versus your own internal execution, so 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.

Well, I would say it's probably 75% for this quarter that passed, 75% internal. And I would say that because really, Howard, Gary touched on this. Our own business transformation, moving our install base of customers and our new customers into a more routable 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 two, three years ago is actually becoming a nice tailwind. And this last quarter was testimony to that. We've also been, 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 of 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-powered by Metallic AI platform that we're seeding into customers at this point. Technologies like cleanroom [ph] recovery are really beginning to get customers' attention. So if you, 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 we're solving the problem externally. We're solving a really hard problem for customers. Cyber threats are real, and what we're able to do for them is meaningful.

Okay, that's really good color, and thank you for 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.

Yes, good morning, Howard. I'd like to help begin this morning. So a couple things is, as you know, our announcements related to our new platform, Commvault Cloud just hit the market just a couple months ago, okay? So where we're focused now is on demand gen. So in starting to see some of the early benefits that we start 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 reflective 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 out through our install base. We finally have a platform that makes the buying process for 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.

Yes. And Howard, Sanjay here, it's quite honestly, it's still early to quantify in dollar terms, the impact, but we're very, very positive about it from what we see as the pipeline builds. I'll give you some, I'll just give you an anecdotal point of view. The number of conversations I've had with security teams and CISOs since we launched on November 8th has been unprecedented. We're seeing 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.

Thanks guys, really exciting stuff. Thanks.

Thanks Howard.

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

Hey guys, great quarter. Just building off the last few 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 the cyber, buying for cyber-security 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?

Hey Jim, it's Sanjay. I just sort of touched on that in the previous Howard's question. We're seeing a lot of security conversations. And by the way, this wasn't our first foray into security. We've had security in our product for a long time. Last June, we announced a series of innovations and then we followed it up in November and we continue to follow that up now. Data, even before cyber resilience, data protection without information security was pointless. There was nothing there. So we had security built into our overall data protection platform, which we've extended end to end with our cyber resilience capabilities. Okay, let me give you an example. And I've said this for a long time, data protection and data security are merging 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, 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 resilience. 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're protecting against the cyber. So it's all one platform, one capability.

Makes sense, Sanjay, I appreciate that. And 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 the kind of field. Thanks guys?

Yes, thanks, Jim, and good morning. Yes in some of my prepared remarks, I had to talk 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 at it in the 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 does require some level of investment. 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 more and most importantly, continue to make sure we have the right resources and campaigns around accelerating our SaaS model. What some of these investments require is that alignment, especially into the partner ecosystem. So if I look at the partner ecosystem, there's really three key pieces that we're focused on. Number one is hyperscalers. We're starting to see some great acceleration with hyperscalers. We did the largest amount of revenue ever through marketplaces this quarter. And we want to capitalize on that momentum. It's also building out the MSP route, especially with our SaaS focused product. And third is a lot of these large transformational cyber projects are totally integrated with the GSIs and Lines. Okay, so if you're trying to think about some of the areas that are important to us to capitalize on the growth, they're the key areas we're focused on.

Makes sense, great quarter guys.

Thank you.

Your next question comes from the line of Rudy Kessinger with D.A. Davidson. Your line is open.

Hey guys, thanks for taking my questions and I'll add my congrats to what looks like a great quarter, some really good numbers here. On SaaS, a growth re-accelerated 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 sales versus new customers? And also, do you have any conversions in there yet? Or is it still mostly true organic ARR growth?

Hey, Rudy, thanks Gary. Good morning and nice to hear from you today. One of the key things that we look at to relate to SaaS is how we look at sequentially from an ARR basis, okay? And hitting the 152 million ARR, the sequential growth we had from last quarter to this quarter with an old pipeline. So in a numerical, we had the highest sequential increase in SaaS ARR, which is shows to the acceleration we're seeing in the as-as-a-service delivery model. Okay? And it's a combination of two things as you highlighted. One is, I'll call our lane and expand, new business. And we're still seeing the majority of that from upsell. Okay? Upsell meaning more of the same workloads, our primary workloads. We're starting to see the cross-sell start to commit, but it's still relatively less than the additional workloads of similar functionality. Now, in introducing with the new cyber resiliency offering, we're setting ourselves up for that cross-sell opportunity as we get into the next fiscal year. So we look the next fiscal year for that. But the key driver on the 125% NRR has been upsell. The other key piece though is the maturing renewal cycle and driving to really strong gross removal rates. So we're doing a very good job of now maturing and having a fully mature renewal cycle as well. So those pieces are help driving that momentum.

And Rudy, Sanjay, I think you didn't directly ask the question, but new customers, part of our land, a new customer acquisition, momentum with our SaaS workloads is growing in the hundreds every quarter. And the attach, the cross-sell of software with SaaS is actually quite something we appreciate and are working on because, which is also testimony 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 single 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. That's a key differentiator for us.

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 candlelizing over from converting or install base. You asked that question specifically and we're not. That's not part of the current play or which driving the business. This is all about net new business.

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 and Q3. If I look back last year at seasonality, your net new Metallic ARR and 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 the SaaS ARR, but just giving your months into the quarter, how should we expect new SaaS ARR to come in for the March quarter versus December?

I'll take that Rudy. It's Gary again. 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 like 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 lay into the fiscal year. We're not calling, but we're trying to get.

Great. That's it for me. Thanks for taking the questions again and congrats again.

Thank you.

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

Yes, I noticed a nice pick up on the America's reach in that 16% year-on-year. Was that kind of broad based across verticals or was there any particular verticals that stood out for you?

Yes. Hey Eric, it's Gary. I'd like to hear from you again this morning as well. Our America's had really strong quarter from a total perspective. Our America's business was up 16% year-over-year really driven by that subscription revenue as well. Just the total subscription revenue in the America's 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 is well as kind of larger land and expand deals. Our new, I'm sorry, our big deal, so what we say kind of those term software deals over $100,000 were 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 Fed. This quarter it was more broad based across the vertical stream tied to executing against the renewal stream and the larger deals.

Got it. And then the buyback program, I know you haven't given us a view for FY 2025, but you've been relatively consistent of 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've lost it the current plan?

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 facing data guidance of at least 75% of free cash flow is a good modeling trend. As you can kind of tell through the nine 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.

Thanks for taking my questions.

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

Thank you. Good morning guys. 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 FY2025 without pinning you down on guidance right now do you think the growth could be higher in revenue growth could be higher in 2025 than 2024?

Okay. Hey Jason, it's Gary. Good morning. I'll hit a couple of these points. So first revenue growth for us is ultimately an output of what we're seeing from an ARR perspective. So let me start 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 right 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 2025 yet. Clearly our expectation that FY 2025 growth will be higher than FY 2024. Right and as we start to get work towards our next call next quarter we will give a little more clarity on four-year FY20 actual results but we 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 the momentum from the quarter we just had and clearly where expectation is that our growth next year will be higher than this year on the top line.

Got you. Okay great. 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 at the on kind of day one of the quarter and 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 is actually coming from those sources today?

We don't quantify specifically right I'll say what's the contractual revenue we have in the bag on Q1 or day one of the quarter. Though as you look at a couple key pieces we just close our SaaS ARR so you can take our SaaS ARR and divide it by roughly four and you could that's almost guaranteed you 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 in customer support you have a very strong starting point to the quarter. It's how we see it. The renewal piece then we strive leverage and the incremental that goes over our land business. I think we're all closed 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 focuses on in increasing product of predictability sequentially as each quarter goes.

Okay. 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?

Both are healthy contributions. Both are. We can't get into the specifics. We're not getting into those specifics but they're both they're both very healthy contributions.

And it's obviously a lot higher today than it was a couple years ago.

Yes that's right.

All right thank you guys.

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

Hey good morning guys and great execution here and solid results. Congratulations. Just want to maybe piggyback on Jason there on the potential renewal opportunity. You're pretty clear about saying that fiscal 3Q we just passed was a very large opportunity for the company. I think one of the largest, I think Gary said, in that fiscal 4Q would be lower. Maybe Jason literally just asked this, but will the renewal opportunity that it seems like you have a solid grasp around this, will the renewal opportunity in fiscal 2025 be bigger or the same as fiscal 2024?

Got it. So, hey Tom, it's Gary. And I'll jump in and maybe give you a little foundational piece that will help [Indiscernible] 25. Fiscal Q3 is typically our largest because it's tied to all the accounting year and deals we've done over a corporate period. And fiscal Q4 will be modestly lower. So, not significantly, but lower. Okay. 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 renewal population 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.

Much less from fiscal 2022 to fiscal 2024, but higher than fiscal 2024 nonetheless. That's helpful. Thank you, Gary. And maybe Sanjay, 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 the last couple of years here. Talk to us about maybe incentives and the capacity that you have internally to have a combat in terms of attacking the opportunities as you climb up to the CISO suite there.

Sorry, what was the last part of your question?

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

I mean, incentives, 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 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 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 a cyber, our cyber resilience board, which is a board of absolute luminaries in the field of cyber security, headed by Melissa Hathaway, who was an advisor and part of two presidential administrations on security and cyber security. So we're really amping not just the product, but also the capability, the thought leadership around it, and enablement within that. So there's a lot of work going on. And yes, 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 identify and defend, the perimeter security folks, 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 defend and identify side 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 to do. Lots to do. Everybody we hire, we try and bring in with a security background, quite simple. As simple as that, as a litmus test. Okay?

The follow-up there would just be with regarding to the security your 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. You mentioned TCO and your preamble. Is this a combalt kind of like taking wallet share and consolidating vendors, or is this more of a, and who would those vendors be, or is this more of just a continued expansion?

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 the ART platform. Just we've seen customers at the table with the IT organization, the infrastructure team, as well as the security team. And they're working together, rightfully so, to solve a complex issue, a hard problem. And I think they quite, we're seeing the budget sort of munch together in many customers to say, we, this is not just a data protection piece or a data security piece. It has to be together. So I think we're actually seeing deficiencies 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.

Okay, just, yes, that's helpful. And just one very quick one, sorry to have four questions here, 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'd be helpful. Thank you, guys.

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 you're going to buy 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 staff gross margins. Okay, we're working very clearly towards our goal of getting into that 70% plus range of gross margins. 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.

Very true. Great, thanks guys. Great quarter.

Thank you.

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

Yes, 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 distinctly 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?

I mean, the answer, the short answer is you can't have a conversation without AI coming up. That's just a fact. Now, what we've done is Aaron, we've kind of, 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 makes their life 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 into really delivering value, not just AI washing our 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 do the anomaly detection, really do the cyber, get real cyber resilience. 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 breached 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 great starting point and then applying AI across a clean room recovery scenario to really help customers truly be resilient and recover. At the end of the day, that's what matters. And so these are the three, I'm oversimplifying it, but these are the three big buckets under which we've applied AI in the first avatar of our technology. And it's continuing. We have a very rich and robust roadmap and everything I've talked about exists. So there's no AI washing it, of which there's a lot going on right now. And we have to be, 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.

Thank you.

Thanks, Aaron.

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

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.

Thank you.