Metallic’s Reverse Takeover of Commvault

Commvault is midway through a self-initiated reverse takeover by Metallic, and it’s just what the company needed.

As I wrote in 2019 Commvault badly needed a refresh. Commvault had become a dusty brand, looked on as legacy and unimportant for people who were not already customers. The cloud-focused, newer startups were growing quickly and winning customers away from all the established players, and snapping up lots of new cloud workloads as well.

CEO Mirchandani came in to refresh the brand and its products. One of the early moves was the acquisition of Hedvig, which I said at the time seemed somewhat reactionary but did illustrate a new approach and a willingness to take a few risks. This particular bet didn’t work out as well as hoped, with Commvault taking a $40.7 million charge in FY2021 to write off the intangible assets acquired with Hedvig.

A cynical person might even say that the decision to write off $40 million during a global pandemic was a clever piece of earnings management. A kinder person might suggest that Commvault has wisely and prudently chosen to own up to its mistake quickly. Either way, an extra $40 million hitting the bottom line in FY2022 helps with profitability quite a bit.

Line Go Up

Plugging Commvault’s latest full-year financial results into my handy Spreadsheet of MBA Analysis™ we see a succinct picture of what I mean. Lines that had been going down are now starting to go up. Revenues are going up, and costs are going down. This has almost nothing to do with Hedvig and everything to do with Metallic.

Commvault forecast 2022 Return on Equity and Return on Assets (Source: SEC filings, PivotNine analysis)
Commvault forecast 2022 income growth (Source: SEC filings, PivotNine analysis)

Launched in 2019, Metallic was just the shot in the arm that Commvault needed. It was something for new customers that were already in the cloud and needed something that traditional Commvault couldn’t offer, and it was an opportunity for existing customers to stick with Commvault as they moved their workloads into the cloud.

We’re seeing very clearly that the enterprises that make up Commvault’s traditional market aren’t abandoning their existing infrastructure to go all-in to cloud. Certainly nothing like the early, breathless exhortations said would happen, anyway. But enterprises are using cloud, and lots of it. They’re doing what enterprises do: use a bit of everything, all the time.

Cloud All The Things

Enterprises hate being forced to choose, whether that’s “you have to do this in us-east-1 if you want cloud” or “no, you can’t have an API if the backup system is on-site”. They want to run things in more or less the same way wherever it is, which increasingly means making traditional infrastructure work like the cloud services they’ve gotten used to.

We saw the same dynamic when executives liked their shiny new iPhone more than their corporate-IT approved Blackberry—the iPhone won, and corporate IT adapted.

Metallic is Commvault doing this to itself. Rather than trying to hold back the tide of people flocking to a new way of doing things, Commvault has embraced the new while continuing to support the old… at least for now. Long-term, I can’t see traditional Commvault surviving, but it won’t matter, because the change will happen gradually. This is the only way change can happen for enterpises, because they hate change until they decide they want it, and then they want it yesterday.

So expect traditional Commvault to look more and more like Metallic, and Metallic to absorb all the features and functions that enterprises need to be there. Piece by piece, Metallic will bring across the good and worthwhile parts of traditional Commvault and throw away the rest. Enterprises will get used to the Metallic way of doing things and slowly stop using operational processes that should have been abandoned a decade ago.

This is an immensely difficult task, but the numbers suggest that Commvault is doing a fabulous job. It is managing to continue to support its longtime customers while offering something to new ones, and helping the old guard to adapt along the way.

Of all the traditional enterprise backup vendors, I can’t point to another one that is managing to refresh itself as successfully as Commvault. Mirchandani is to be congratulated.

Now all he has to do is keep it up. Simple, right?

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