Data protection and data management provider Commvault Systems Inc. this morning posted second-quarter earnings that showed continued growth in recurring revenues, but fell short of analyst expectations.

Investors were alarmed, and the stock was falling almost 19% in trading today.

Commvault’s sales reached $177.8 million in the three months ended Sept. 30, up 4% from the same time a year ago but about 3.7% less than what the Zacks Consensus Estimate had projected. The company’s recurring revenue increased faster. Commvault’s annualized recurring revenue jumped 12% year-over-year, to $542.6 million and, during the quarter, accounted for 79% of total sales.

The increase in Commvault’s recurring revenue is the result of an effort by the company to refocus its product strategy on the hybrid cloud and subscription-based offerings. As part of the initiative, the company in late 2019 launched Metallic, a software-as-a-service backup and recovery platform designed to be easy to use. Originally aimed at small to midsized businesses, Metallic soon started seeing demand from large organizations. 

Commvault reported today that its services revenue segment, which includes Metallic, grew 4% in the quarter year-over-year, to $102.6 million. The company said that the backup and recovery service was the primary driver behind the segment’s revenue growth.

Large transactions worth at least $100,000 accounted for 67% of the software and products revenue that Commvault logged in the second quarter. The total number of large transactions the company closed rose 9% from a year ago, to 163, but some organizations delayed their buying decisions. Commvault named “delayed software opportunities” as one of the factors behind its revenue miss. 

“During the quarter we saw a significant increase in new customer revenue,” said Commvault Chief Executive Officer Sanjay Mirchandani. “Winning new customers and taking market share is foundational to meeting our longer-term financial objectives. At the same time, we did not meet our expectations for the quarter. We believe the impact was principally isolated to delayed software opportunities that are part of larger IT Transformation projects.” 

Mirchandani added that “we believe industry-wide supply chain issues are impacting our customers’ sourcing of hardware components and associated software orders.”

Commvault’s adjusted earnings before interest and taxes missed analyst expectations, despite rising to $31 million from $28.9 million a year ago. As for the next quarter, the company is anticipating revenues to grow from $177.8 million in the last quarter to $195 million.

Commvault has been working to maintain the growth of its Metallic backup and recovery service by adding more features. In May, the company extended the service with new capabilities that allow customers to back up data from Microsoft Corp.’s Dynamics 365 product suite. The suite includes the tech giant’s popular customer relationship management and enterprise resource planning applications.

To support its revenue growth effort, Commvault in 2019 bought a startup called Hedvig and used its technology to build the HyperScale X data protection appliance. The appliance enables companies to create an on-premises backup copy of software container workloads, virtual machines and databases they run in the public cloud. Like Metallic, HyperScale X has emerged as an important pillar of the company’s product strategy.

Image: Commvault