cvlt-20211231
COMMVAULT SYSTEMS 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: December 31, 2021
 
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 1-33026 
Commvault Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-3447504
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
1 Commvault Way
Tinton Falls, New Jersey 07724
(Address of principal executive offices, including zip code)

(732) 870-4000
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockCVLTThe Nasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, "accelerated filer", "smaller reporting company" and "emerging growth company" in rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerxAccelerated filerNon-accelerated filerSmaller reporting company
Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
As of January 24, 2022, there were 44,559,594 shares of the registrant’s common stock, $0.01 par value, outstanding.
1


COMMVAULT SYSTEMS, INC.
FORM 10-Q
INDEX
 
  Page
Part I – FINANCIAL INFORMATION
Item 1.Financial Statements
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2



Commvault Systems, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
December 31,
2021
March 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$233,691 $397,237 
Trade accounts receivable, net213,040 188,126 
Other current assets20,310 22,237 
Total current assets467,041 607,600 
Property and equipment, net108,122 112,779 
Operating lease assets16,492 20,778 
Deferred commissions cost46,491 38,444 
Goodwill112,435 112,435 
Other assets17,978 12,137 
Total assets$768,559 $904,173 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$248 $374 
Accrued liabilities106,384 112,148 
Current portion of operating lease liabilities5,615 7,469 
Deferred revenue253,527 253,211 
Total current liabilities365,774 373,202 
Deferred revenue, less current portion134,856 119,231 
Deferred tax liabilities, net754 761 
Long-term operating lease liabilities12,148 15,419 
Other liabilities1,567 1,526 
Commitments and contingencies (Note 5)
Stockholders’ equity:
Preferred stock, $0.01 par value: 50,000 shares authorized, no shares issued and outstanding
  
Common stock, $0.01 par value: 250,000 shares authorized, 44,682 shares and 46,482 shares issued and outstanding at December 31, 2021 and March 31, 2021, respectively
445 463 
Additional paid-in capital1,136,899 1,069,695 
Accumulated deficit(872,257)(665,774)
Accumulated other comprehensive loss(11,627)(10,350)
Total stockholders’ equity253,460 394,034 
Total liabilities and stockholders’ equity$768,559 $904,173 
See accompanying unaudited notes to consolidated financial statements
1


Commvault Systems, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 Three Months Ended December 31,Nine Months Ended December 31,
 2021202020212020
Revenues:
Software and products$98,575 $88,625 $255,998 $237,488 
Services103,806 99,367 307,644 294,643 
Total revenues202,381 187,992 563,642 532,131 
Cost of revenues:
Software and products4,271 6,916 9,471 20,666 
Services25,692 21,496 72,341 59,096 
Total cost of revenues29,963 28,412 81,812 79,762 
Gross margin172,418 159,580 481,830 452,369 
Operating expenses:
Sales and marketing89,217 84,542 248,506 245,287 
Research and development39,257 35,727 113,118 97,824 
General and administrative29,132 22,702 80,919 69,009 
Restructuring  11,618 2,082 19,709 
Impairment of intangible assets   40,700 
Depreciation and amortization2,451 2,323 7,084 12,441 
Total operating expenses160,057 156,912 451,709 484,970 
Income (loss) from operations12,361 2,668 30,121 (32,601)
Interest income120 167 543 759 
Interest expense(19) (19) 
Other income, net564  564  
Income (loss) before income taxes13,026 2,835 31,209 (31,842)
Income tax expense3,018 1,162 5,573 5,373 
Net income (loss)$10,008 $1,673 $25,636 $(37,215)
Net income (loss) per common share:
Basic$0.22 $0.04 $0.56 $(0.80)
Diluted$0.21 $0.03 $0.54 $(0.80)
Weighted average common shares outstanding:
Basic45,242 47,013 45,720 46,575 
Diluted46,719 48,013 47,552 46,575 

See accompanying unaudited notes to consolidated financial statements
2



Commvault Systems, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
 Three Months Ended December 31,Nine Months Ended December 31,
 2021202020212020
Net income (loss)$10,008 $1,673 $25,636 $(37,215)
Other comprehensive income (loss):
Foreign currency translation adjustment36 2,285 (1,277)4,023 
Comprehensive income (loss)$10,044 $3,958 $24,359 $(33,192)

See accompanying unaudited notes to consolidated financial statements
3


Commvault Systems, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)

  
Common Stock
Additional
Paid – In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
 SharesAmount
Balance as of September 30, 202145,374 $452 $1,119,738 $(808,749)$(11,663)$299,778 
Stock-based compensation28,533 28,533 
Share issuances related to stock-based compensation606 6 421 427 
Repurchase of common stock(1,298)(13)(11,793)(73,516)(85,322)
Net income10,008 10,008 
Other comprehensive income36 36 
Balance as of December 31, 202144,682 $445 $1,136,899 $(872,257)$(11,627)$253,460 

 
Common Stock
Additional
Paid – In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
SharesAmount
Balance as of March 31, 202146,482 $463 $1,069,695 $(665,774)$(10,350)$394,034 
Stock-based compensation76,793 76,793 
Share issuances related to stock-based compensation1,906 19 23,669 23,688 
Repurchase of common stock(3,706)(37)(33,258)(232,119)(265,414)
Net income25,636 25,636 
Other comprehensive loss(1,277)(1,277)
Balance as of December 31, 202144,682 $445 $1,136,899 $(872,257)$(11,627)$253,460 














4


Commvault Systems, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
  
Common Stock
Additional
Paid – In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
 SharesAmount
Balance as of September 30, 202046,685 $464 $1,023,459 $(592,762)$(11,685)$419,476 
Stock-based compensation22,037 22,037 
Share issuances related to stock-based compensation851 9 1,723 1,732 
Repurchase of common stock(701)(7)(6,146)(26,979)(33,132)
Net income1,673 1,673 
Other comprehensive income2,285 2,285 
Balance as of December 31, 202046,835 $466 $1,041,073 $(618,068)$(9,400)$414,071 

 
Common Stock
Additional
Paid – In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
SharesAmount
Balance as of March 31, 202046,011 $458 $978,659 $(553,790)$(13,423)$411,904 
Stock-based compensation61,572 61,572 
Share issuances related to stock-based compensation1,525 15 6,988 7,003 
Cumulative effect change in accounting for ASU 2016-13(84)(84)
Repurchase of common stock(701)(7)(6,146)(26,979)(33,132)
Net loss(37,215)(37,215)
Other comprehensive income4,023 4,023 
Balance as of December 31, 202046,835 $466 $1,041,073 $(618,068)$(9,400)$414,071 

See accompanying unaudited notes to consolidated financial statements









5


Commvault Systems, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended December 31,
 20212020
Cash flows from operating activities
Net income (loss)$25,636 $(37,215)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization8,027 13,379 
Noncash stock-based compensation76,793 61,572 
Noncash change in fair value of equity securities436  
Amortization of deferred commissions cost13,344 13,747 
Impairment of operating lease assets 1,304 
Impairment of intangible assets 40,700 
Changes in operating assets and liabilities:
Trade accounts receivable(25,546)(38,970)
Operating lease assets and liabilities, net(809)(719)
Other current assets and Other assets(2,172)6,955 
Deferred commissions cost(21,852)(15,946)
Accounts payable(120)273 
Accrued liabilities(3,293)484 
Deferred revenue19,564 10,719 
Other liabilities56 2,964 
Net cash provided by operating activities90,064 59,247 
Cash flows from investing activities
Proceeds from maturity of short-term investments 32,800 
Purchase of property and equipment(3,328)(5,994)
Purchase of equity securities(3,527) 
Other500  
Net cash (used in) provided by investing activities(6,355)26,806 
Cash flows from financing activities
Repurchase of common stock(265,414)(33,132)
Proceeds from stock-based compensation plans23,688 7,003 
Payment of debt issuance costs(609) 
Net cash used in financing activities(242,335)(26,129)
Effects of exchange rate — changes in cash(4,920)21,563 
Net (decrease) increase in cash and cash equivalents(163,546)81,487 
Cash and cash equivalents at beginning of period397,237 296,082 
Cash and cash equivalents at end of period$233,691 $377,569 
See accompanying unaudited notes to consolidated financial statements

6

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited
(In thousands, except per share data)


1.    Basis of Presentation
Commvault Systems, Inc. and its subsidiaries ("Commvault," "we," "us," or "our") is a provider of data protection and information management software applications and products. We develop, market and sell a suite of software applications and services, globally, that provides our customers with data protection solutions. We also provide our customers with a broad range of professional and customer support services.

The consolidated financial statements of Commvault as of December 31, 2021 and for the three and nine months ended December 31, 2021 and 2020 are unaudited, and in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the financial statements and notes in our Annual Report on Form 10-K for fiscal 2021. The results reported in these financial statements should not necessarily be taken as indicative of results that may be expected for the entire fiscal year.
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments and estimates that affect the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The amount of assets and liabilities reported in our balance sheets and the amounts of revenues and expenses reported for each of our periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, income taxes and related reserves and goodwill. Actual results could differ from those estimates.

2.    Summary of Significant Accounting Policies
Recently Adopted Accounting Standards
StandardDescriptionEffective DateEffect on the Consolidated Financial Statements (or Other Significant Matters)
ASU No. 2019-12 (Topic 740), Income TaxesIn December 2019, the Financial Accounting Standards Board ("FASB") issued a new standard to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.We adopted this standard as of April 1, 2021.The standard did not have a significant impact on our financial statements.


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Table of Contents     
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)


Concentration of Credit Risk
We grant credit to customers in a wide variety of industries worldwide and generally do not require collateral. Credit losses relating to these customers have historically been minimal.
Sales through our distribution agreement with Arrow Enterprise Computing Solutions, Inc. (“Arrow”) totaled 38% and 35% of total revenues for the three months ended December 31, 2021 and 2020, respectively. Sales with Arrow totaled 36% of total revenues for both the nine months ended December 31, 2021 and 2020. Arrow accounted for approximately 34% and 33% of total accounts receivable as of December 31, 2021 and March 31, 2021, respectively.

Equity Securities Accounted for at Net Asset Value
We held equity interests in private equity funds of $2,900 as of December 31, 2021, which are accounted for under the net asset value practical expedient as permitted under ASC 820, Fair Value Measurement. These investments are included in Other assets in the accompanying Consolidated Balance Sheets. The net asset values of these investments are determined using quarterly capital statements from the funds, which are based on our contributions to the funds, allocation of profit and loss and changes in fair value of the underlying fund investments. Changes in fair value as reported on the capital statements are recorded through profit and loss as non-operating income or expense. These private equity funds focus on making investments in key technology sectors, principally by investing in companies at expansion capital and growth equity stages. We have total unfunded commitments in private equity funds of $7,600 as of December 31, 2021.

Deferred Commissions Cost
Sales commissions, bonuses, and related payroll taxes earned by our employees are considered incremental and recoverable costs of obtaining a contract with a customer. Our typical contracts include performance obligations related to software licenses, software updates, customer support and other services, including software-as-a-service offerings. In these contracts, incremental costs of obtaining a contract are allocated to the performance obligations based on the relative estimated standalone selling prices and then recognized on a systematic basis that is consistent with the transfer of the goods or services to which the asset relates. We do not pay commissions on annual renewals of contracts for software updates and customer support for perpetual licenses. The costs allocated to software and products are expensed at the time of sale, when revenue for the functional software license or appliance is typically recognized. The costs allocated to software updates and customer support for perpetual licenses are amortized ratably over a period of approximately five years, the expected period of benefit of the asset capitalized. We currently estimate a period of five years is appropriate based on consideration of historical average customer life and the estimated useful life of the underlying software sold as part of the transaction.
Beginning in fiscal 2022, we modified the terms of our commission plans, and as a result, the commission paid on the renewal of a term-based, or subscription software license, was not commensurate with the commission paid on the initial purchase. As a result, the cost of commissions allocated to software updates and customer support on the initial transaction are now amortized over a period of approximately five years, consistent with the accounting for these costs associated with perpetual licenses. The costs of commissions allocated to software updates and support for the renewal of term-based software licenses is limited to the contractual period of the arrangement, as we intend to pay a commensurate renewal commission upon the next renewal of the subscription license and related updates and support. This change in commission plans also resulted in a change in the estimate of the amortization period of our existing Deferred commissions cost associated with term licenses. This change in amortization period resulted in an approximately $825 and $2,875 reduction in Sales and marketing expense, than if the change in estimate did not occur, for the three and nine months ended December 31, 2021, respectively.
The costs related to professional services are amortized over the period the related professional services are provided and revenue is recognized. Amortization expense related to these costs is included in Sales and marketing expenses in the accompanying Consolidated Statements of Operations.

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Table of Contents     
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)

3.    Revenue
We derive revenues from two primary sources: software and products, and services. Software and products revenue includes our software and integrated appliances that combine our software with hardware. Services include customer support (software updates and technical support), consulting, assessment and design services, installation services, customer education and Commvault software-as-a-service, which is branded as Metallic.
We sell both perpetual and term-based licenses of our software. We refer to our term-based software licenses as subscription arrangements. We do not customize our software, and installation services are not required. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that our software licenses (both perpetual and subscription) are functional intellectual property that is distinct as the user can benefit from the software on its own. Software revenue for both perpetual and subscription licenses is typically recognized when the software is delivered and/or made available for download as this is the point the user of the software can direct the use of, and obtain substantially all of the remaining benefits from, the functional intellectual property. We do not recognize software revenue related to the renewal of subscription software licenses earlier than the beginning of the new subscription period.
We also sell appliances that integrate our software with hardware and address a wide-range of business needs and use cases, ranging from support for remote or branch offices with limited IT staff up to large corporate data centers. Revenue related to appliances is recognized when control of the appliances passes to the customer; typically upon delivery. In the second half of fiscal 2021 we began transitioning to a software only model in which we primarily sell software to a third party, which assembles an integrated appliance that is sold to end user customers. As a result, the revenue and costs associated with hardware have declined from recent fiscal years.
Services revenue includes revenue from customer support and other professional services. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. We sell our customer support contracts as a percentage of net software purchases the support is related to. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year on our perpetual licenses. The term of our subscription arrangements is typically three years.

Our other professional services include consulting, assessment and design services, installation services and customer education. Customer education services include courses taught by our instructors or third-party contractors. Revenue related to other professional services and customer education services is typically recognized as the services are performed.

In fiscal 2020 Commvault launched Metallic, which is a Commvault software-as-a-service offering. Revenue from Metallic is recognized ratably as services revenue.

Most of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software are typically estimated using the residual approach. Standalone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis.

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Table of Contents     
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)

Our typical performance obligations include the following:

Performance ObligationWhen Performance Obligation
 is Typically Satisfied
When Payment is
Typically Due
How Standalone Selling Price is
Typically Estimated
Software and Products Revenue
Software LicensesUpon shipment or made available for download (point in time)
Within 90 days of shipment except for certain subscription licenses which are paid for over time
Residual approach
Customer Support Revenue
Software UpdatesRatably over the course of the support contract (over time)At the beginning of the contract period Observable in renewal transactions
Customer SupportRatably over the course of the support contract (over time)At the beginning of the contract period Observable in renewal transactions
Other Services Revenue
Other Professional Services (except for education services)As work is performed (over time)
Within 90 days of services being performed
Observable in transactions without multiple performance obligations
Education ServicesWhen the class is taught (point in time)
Within 90 days of services being performed
Observable in transactions without multiple performance obligations
Software-as-a-service (Metallic)
Ratably over the course of the contract (over time)Annual or monthly paymentsObservable in transactions without multiple performance obligations

Disaggregation of Revenue

We disaggregate revenue from contracts with customers into the nature of the products and services and geographical regions. The geographic regions that we track are the Americas (United States, Canada, Latin America), EMEA (Europe, Middle East, Africa) and APJ (Australia, New Zealand, Southeast Asia, China). We operate in one segment.
Three Months Ended December 31, 2021
AmericasEMEAAPJTotal
Software and Products Revenue$57,538 $32,949 $8,088 $98,575 
Customer Support Revenue50,163 26,018 9,826 86,007 
Other Services Revenue10,620 5,234 1,945 17,799 
Total Revenue$118,321 $64,201 $19,859 $202,381 

Three Months Ended December 31, 2020
AmericasEMEAAPJTotal
Software and Products Revenue$43,636 $33,374 $11,615 $88,625 
Customer Support Revenue53,488 25,808 10,386 89,682 
Other Services Revenue5,031 3,332 1,322 9,685 
Total Revenue$102,155 $62,514 $23,323 $187,992 

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Table of Contents     
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)

Nine Months Ended December 31, 2021
AmericasEMEAAPJTotal
Software and Products Revenue$153,510 $76,570 $25,918 $255,998 
Customer Support Revenue153,244 79,080 30,105 262,429 
Other Services Revenue27,323 12,776 5,116 45,215 
Total Revenue$334,077 $168,426 $61,139 $563,642 
Nine Months Ended December 31, 2020
AmericasEMEAAPJTotal
Software and Products Revenue$133,522 $74,232 $29,734 $237,488 
Customer Support Revenue162,903 74,029 30,840 267,772 
Other Services Revenue13,938 8,971 3,962 26,871 
Total Revenue$310,363 $157,232 $64,536 $532,131 


Information about Contract Balances

Amounts collected in advance of services being provided are accounted for as Deferred revenue. Nearly all of our Deferred revenue balance is related to services revenue, primarily customer support and Metallic contracts.

In some arrangements we allow customers to pay for term-based software licenses and products over the term of the software license. Amounts recognized as revenue in excess of amounts billed are recorded as Unbilled receivables. Unbilled receivables, which are anticipated to be invoiced in the next twelve months, are included in Accounts receivable on the Consolidated Balance Sheets. Long-term unbilled receivables are included in Other assets. The opening and closing balances of our Accounts receivable, Unbilled receivables, and Deferred revenues are as follows:
Accounts ReceivableUnbilled Receivable
(current)
Unbilled Receivable
(long-term)
Deferred Revenue
(current)
Deferred Revenue
(long-term)
Opening Balance as of March 31, 2021
$168,985 $19,141 $7,463 $253,211 $119,231 
Increase (decrease), net27,420 (2,506)(636)316 15,625 
Ending Balance as of December 31, 2021
$196,405 $16,635 $6,827 $253,527 $134,856 

The net increase in Accounts receivable (inclusive of Unbilled receivables) is a result of an increase in software and products revenue relative to the fourth quarter of the prior fiscal year. The increase in Deferred revenue is primarily the result of an increase in deferred revenue associated with Metallic contracts that are billed upfront and recognized ratably over the contract period.

The amount of revenue recognized in the period that was included in the March 31, 2021 balance of deferred revenue was $56,383 and $217,309 for the three and nine months ended December 31, 2021. The vast majority of this revenue consists of customer support arrangements. The amount of software and products revenue recognized in the three and nine months ended December 31, 2021 related to performance obligations from prior periods was not significant.

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Table of Contents     
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)

Remaining Performance Obligations

In addition to the amounts included in deferred revenue as of December 31, 2021, $57,953 of revenue may be recognized from remaining performance obligations, of which approximately $10,000 was related to software and products. This amount includes renewals of term licenses received prior to the expiration of the existing license period. We expect the majority of this software and products revenue to be recognized during fiscal 2022. Most of this software and products revenue is associated with renewals of term licenses which have not yet expired. The vast majority of the services revenue is related to other professional services which may be recognized over the next twelve months but is contingent upon a number of factors, including customers’ needs and schedules.

4.    Net Income (Loss) per Common Share
Three Months Ended December 31,Nine Months Ended December 31,
2021202020212020
Net income (loss)$10,008 $1,673 $25,636 $(37,215)
Basic net income (loss) per common share:
Basic weighted average shares outstanding45,242 47,013 45,720 46,575 
Basic net income (loss) per common share$0.22 $0.04 $0.56 $(0.80)
Diluted net income (loss) per common share:
Basic weighted average shares outstanding45,242 47,013 45,720 46,575 
Dilutive effect of stock options and restricted stock units1,477 1,000 1,832  
Diluted weighted average shares outstanding46,719 48,013 47,552 46,575 
Diluted net income (loss) per common share$0.21 $0.03 $0.54 $(0.80)

The diluted weighted-average shares outstanding exclude outstanding stock options, restricted stock units, performance restricted stock units and shares to be purchased under the employee stock purchase plan totaling 624 and 1,049 for the three months ended December 31, 2021 and 2020, respectively, and 566 and 5,160 for the nine months ended December 31, 2021 and 2020, because the effect would have been anti-dilutive.

5.    Commitments and Contingencies
During the second quarter of fiscal 2022, we entered into a settlement agreement resulting in a $2,500 gain which resolved certain legal matters. The settlement amount is recorded in General and administrative expenses net against related legal expenses.
We do not believe that we are currently party to any pending legal action that could reasonably be expected to have a material adverse effect on our business or operating results.

6.    Capitalization
Our stock repurchase program has been funded by our existing cash and cash equivalent balances, as well as cash flows provided by our operations.
Our Board has approved, and we intend to execute, a capital allocation policy that provides for the repurchase of $200,000 of our common stock for the period from February 1, 2021 through the end of our 2022 fiscal year, plus the use of approximately 75% of our fiscal 2022 free cash flow for additional repurchases during fiscal year 2022. From the period beginning February 1, 2021 through December 31, 2021 we have repurchased $327,542 of our common stock.
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Table of Contents     
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)

7.    Stock Plans
The following table presents the stock-based compensation expense included in Cost of services revenue, Sales and marketing, Research and development, General and administrative expenses and Restructuring expenses for the three and nine months ended December 31, 2021 and 2020. Stock-based compensation is attributable to stock options, restricted stock units, performance-based awards and the employee stock purchase plan.
 Three Months Ended December 31,Nine Months Ended December 31,
 2021202020212020
Cost of services revenue$1,140 $945 $3,367 $2,351 
Sales and marketing10,073 9,714 27,355 25,906 
Research and development9,127 6,203 24,722 17,722 
General and administrative8,193 4,021 20,977 13,735 
Restructuring 1,154 372 1,858 
Stock-based compensation expense$28,533 $22,037 $76,793 $61,572 
As of December 31, 2021, there was $167,282 of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 1.87 years. We account for forfeitures as they occur. To the extent that awards are forfeited, stock-based compensation will be different from our current estimate.
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Table of Contents     
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)

Stock Options
Stock option activity for the nine months ended December 31, 2021 is as follows:
OptionsNumber of OptionsWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Outstanding as of March 31, 20211,357 $62.06 
Options granted  
Options exercised(398)46.41 
Options forfeited  
Options expired(33)86.55 
Outstanding as of December 31, 2021926 67.93 1.70$8,367 
Exercisable as of December 31, 2021926 67.93 1.70$8,367 

The total intrinsic value of options exercised was $12,631 for the nine months ended December 31, 2021 and $1,287 for the nine months ended December 31, 2020.
Restricted Stock Units
Restricted stock unit activity for the nine months ended December 31, 2021 is as follows:
Non-vested Restricted Stock UnitsNumber of
Awards
Weighted-
Average Grant
Date Fair Value
Non-vested as of March 31, 20213,451 $44.90 
Awarded1,806 70.14 
Vested(1,422)45.05 
Forfeited(262)49.41 
Non-vested as of December 31, 20213,573 $57.21 
The weighted-average fair value of restricted stock units awarded was $67.34 and $70.14 per unit during the three and nine months ended December 31, 2021, and $43.70 and $41.01 per unit during the three and nine months ended December 31, 2020. The weighted-average fair value of awards includes the awards with a market condition described below.

Performance Based Awards
In the nine months ended December 31, 2021, we granted 119 performance restricted stock units ("PSUs") to certain executives. Vesting of these awards is contingent upon i) us meeting certain revenue and non-GAAP performance goals (performance-based) in fiscal 2022 and ii) our customary service periods. The awards vest over three years. These awards generally have potential to vest at 200% based on actual fiscal 2022 performance. The related stock-based compensation expense is determined based on the value of the underlying shares on the date of grant and is recognized over the vesting term using the accelerated method. During the interim financial periods, management estimates the probable number of PSUs that would vest until the ultimate achievement of the performance goals is known. The awards are included in the restricted stock unit table.

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Table of Contents     
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)

Awards with a Market Condition
In the nine months ended December 31, 2021, we granted 105 market performance stock units to certain executives. The vesting of these awards is contingent upon us meeting certain total shareholder return ("TSR") levels as compared to the Russell 3000 market index over the next three years. The awards vest in three annual tranches and have a maximum potential to vest at 200% (210 shares) based on TSR performance. The related stock-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized using the accelerated method over the vesting term. The estimated fair value was calculated using a Monte Carlo simulation model. The fair value of the awards granted during the nine months ended December 31, 2021 was $87.74 per unit. The awards are included in the restricted stock unit table.

Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “Purchase Plan”) is a shareholder approved plan under which substantially all employees may purchase our common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the Purchase Plan are limited to 10% of the employee’s salary and employees may not purchase more than $25 of stock during any calendar year. Employees purchased 85 shares in exchange for $5,160 of proceeds in the nine months ended December 31, 2021 and 129 shares in exchange for $4,652 of proceeds in the nine months ended December 31, 2020. The Purchase Plan is considered compensatory and the fair value of the discount and look back provision are estimated using the Black-Scholes formula and recognized over the six-month withholding period prior to purchase.  The total expense associated with the Purchase Plan for the nine months ended December 31, 2021 and 2020 was $2,428 and $2,528, respectively. As of December 31, 2021, there was approximately $430 of unrecognized cost related to the current purchase period of our Purchase Plan.

8.    Income Taxes
Income tax expense was $3,018 and $5,573 in the three and nine months ended December 31, 2021 compared to expense of $1,162 and $5,373 in the three and nine months ended December 31, 2020. Current income tax expense relates primarily to current foreign taxes. We believe that it is more likely than not that we will not realize the benefits of our gross deferred tax assets and therefore continue to record a valuation allowance to reduce the carrying value of these gross deferred tax assets, net of the impact of the reversal of taxable temporary differences, to zero as of December 31, 2021.

9.    Restructuring
Our restructuring plan, initiated in the first quarter of fiscal 2019, is aimed to increase efficiency in our sales, marketing and distribution functions, as well as reduce costs across all functional areas. These restructuring charges relate primarily to severance and related costs associated with headcount reductions, stock-based compensation related to modifications of existing unvested awards granted to certain employees impacted by the restructuring plan and lease abandonment charges.
Restructuring charges were comprised of the following:

Three Months Ended December 31,Nine Months Ended December 31,
2021202020212020
Employee severance and related costs$ $9,852 $1,710 $16,547 
Lease impairments and related costs (1)
 612  1,304 
Stock-based compensation 1,154 372 1,858 
Total restructuring charges$ $11,618 $2,082 $19,709 

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Table of Contents     
Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)

(1) Lease impairment charges for the three and nine months ended December 31, 2020 relate to one and six offices, respectively. There were no lease impairment charges for the three and nine months ended December 31, 2021.

Restructuring accruals

The activity in our restructuring accruals for the nine months ended December 31, 2021 is as follows:
Total
Balance as of March 31, 2021
$3,095 
Employee severance and related costs1,710 
Payments(4,551)
Balance as of December 31, 2021
$254 

10.    Revolving Credit Facility
On December 13, 2021, we entered into a five-year $100,000 senior secured revolving credit facility (the “Credit Facility”) with J.P. Morgan. The Credit Facility is available for share repurchases, general corporate purposes, and letters of credit. The Credit Facility contains financial maintenance covenants including a leverage ratio and interest coverage ratio. The Credit Facility also contains certain customary events of default which would permit the lender to, among other things, declare all loans then outstanding to be immediately due and payable if such default is not cured within applicable grace periods. The Credit Facility also limits our ability to incur certain additional indebtedness, create or permit liens on assets, make acquisitions, make investments, loans or advances, sell or transfer assets, pay dividends or distributions, and engage in certain transactions with foreign affiliates. Outstanding borrowings under the Credit Facility accrue interest at an annual rate equal to Secured Overnight Financing Rate plus 1.25% subject to increases based on our actual leverage. The unused balance on the Credit Facility is also subject to a 0.25% annual interest charge subject to increases based on our actual leverage. As of December 31, 2021, there were no borrowings under the Credit Facility and we were in compliance with all covenants.
We have deferred the expense related to debt issuance costs, which are classified as Other assets, and will amortize the costs into interest expense over the term of the Credit Facility. Unamortized amounts at December 31, 2021 were $572. The amortization of debt issuance costs and interest expense incurred for the three months ended December 31, 2021 was $19.

11.    Subsequent Event
In January of 2022, we signed an agreement to acquire an overseas firm to enhance our ransomware protection capabilities. The purchase price is approximately $17,000 and will be funded from our foreign cash balance. We expect the deal to close in the fourth quarter of fiscal 2022.
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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis along with our consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q. The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Overview

Commvault Systems, Inc. is a global data protection and information management software company offering customers enterprise level, intelligent data management solutions built from the ground up on a single platform and unified code base. Commvault was incorporated in Delaware in 1996.

At Commvault, we believe in solving hard problems for our customers. To do this, we provide capabilities which enable our customers to accelerate their digital transformation in today's ever evolving workforce using tools that are light touch and utilize artificial intelligence and machine learning to drive automation. Our product portfolio empowers our customers to reduce complexity, reign in data fragmentation, and accelerate their cloud journey. All software functionality shares the same back-end technologies to deliver the benefits of a holistic approach to protecting, managing, and accessing data. Our software addresses many aspects of storage and data management in the enterprise, while providing scalability and control of data and information. We believe our technology provides the broadest set of capabilities in the industry, which allows customers to reduce storage costs and administrative overhead. We also provide our customers with a broad range of professional services.
    
Sources of Revenues
We derive a significant portion of our total revenues from sales of licenses of our software applications and related appliance products. We do not customize our software or products for a specific end-user customer. We sell our software applications and products to end-user customers both directly through our sales force and indirectly through our global network of value-added reseller partners, systems integrators, corporate resellers and original equipment manufacturers. Our software and products revenue was 45% of our total revenues for both the nine months ended December 31, 2021 and 2020, respectively.
Our total software and products revenue in any particular period is, to a certain extent, dependent upon our ability to generate revenues from large customer software and products deals. Larger deals (transactions greater than $0.1 million) represented 71% and 69% of our total software and products revenue in the nine months ended December 31, 2021 and 2020, respectively.
Software and products revenue generated through indirect distribution channels accounted for approximately 90% of total software and products revenue in both the nine months ended December 31, 2021 and 2020. Software and products revenue generated through direct distribution channels accounted for approximately 10% of total software and products revenue in both the nine months ended December 31, 2021 and 2020. Deals initiated by our direct sales force are sometimes transacted through indirect channels based on end-user customer requirements, which are not always in our control and can cause this overall percentage split to vary from period-to-period. As such, there may be fluctuations in the dollars and percentage of software and products revenue generated through our direct distribution channels from time-to-time. We believe that growth of our software and products revenue, derived from both our indirect channel partners and direct sales force, are key attributes to our long-term strategy. We plan to continue to invest in both our channel relationships and direct sales force in the future, but we continue to expect more revenue to be generated through indirect distribution channels over the long term. The failure of our indirect distribution channels or our direct sales force to effectively sell our software applications could have a material adverse effect on our revenues and results of operations.
We have a non-exclusive distribution agreement covering our North American commercial markets and our U.S. Federal Government market with Arrow Enterprise Computing Solutions, Inc. ("Arrow"), a subsidiary of Arrow Electronics, Inc. Pursuant to this distribution agreement, Arrow's primary role is to enable a more efficient and effective distribution channel for our products and services by managing our reseller partners and leveraging their own industry experience. We generated 36% of our total revenues through Arrow for both the nine months ended December 31, 2021 and 2020. If Arrow were to discontinue or reduce the sales of our products, or if our agreement
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with Arrow were terminated, and if we were unable to take back the management of our reseller channel or find another North American distributor to replace Arrow, then such events would have a material adverse effect on our future business.
Our services revenue was 55% of our total revenues for both the nine months ended December 31, 2021 and 2020, respectively. Our services revenue is made up of fees from the delivery of customer support and other professional services, which are typically sold in connection with the sale of our software applications. Customer support agreements provide technical support and unspecified software updates on a when-and-if-available basis for an annual fee based on licenses purchased and the level of service subscribed. Other professional services include consulting, assessment and design services, implementation and post-deployment services and training, all of which to date have predominantly been sold in connection with the sale of software applications. Our software-as-a-service solution, branded Metallic, is also included in services revenue. Revenue from Metallic is recognized ratably over the contract period.

Foreign Currency Exchange Rates’ Impact on Results of Operations
Sales outside the United States were 49% of our total revenue for the nine months ended December 31, 2021 and 48% of our total revenue for the nine months ended December 31, 2020. The income statements of our non-U.S. operations are translated into U.S. dollars at the average exchange rates for each applicable month in a period. To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions generally results in increased revenue, operating expenses and income from operations for our non-U.S. operations. Similarly, our revenue, operating expenses and net income will generally decrease for our non-U.S. operations if the U.S. dollar strengthens against foreign currencies.
Using the average foreign currency exchange rates from the three months ended December 31, 2020, our software and products revenue would have been higher by $1.5 million, our services revenue would have been higher by $0.8 million, our cost of sales would have been higher by $0.2 million and our operating expenses would have been higher by $0.7 million from non-U.S. operations for the three months ended December 31, 2021. Using the average foreign currency exchange rates from the nine months ended December 31, 2020, our software and products revenue would have been lower by $2.4 million, our services revenue would have been lower by $4.8 million, our cost of sales would have been lower by $0.9 million and our operating expenses would have been lower by $4.0 million from non-U.S. operations for the nine months ended December 31, 2021.
In addition, we are exposed to risks of foreign currency fluctuation primarily from cash balances, accounts receivables and intercompany accounts denominated in foreign currencies and are subject to the resulting transaction gains and losses, which are recorded as a component of General and administrative expenses. We recognized net foreign currency transaction losses of approximately $0.3 million and $0.5 million for the three and nine months ended December 31, 2021, respectively. We recognized net foreign currency transaction losses of approximately $0.5 million and $1.7 million for the three and nine months ended December 31, 2020, respectively.

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Critical Accounting Policies
Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period-to-period. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, significant judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. We consider these policies requiring significant management judgment to be critical accounting policies. These critical accounting policies are:
Revenue Recognition
Accounting for Income Taxes
Goodwill
There have been no significant changes in our critical accounting policies during the nine months ended December 31, 2021 as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” included in our Annual Report on Form 10-K for the year ended March 31, 2021.
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Results of Operations
Three months ended December 31, 2021 compared to three months ended December 31, 2020
Revenues (in millions)
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Total revenues increased $14.4 million, or 8% as a result of the following:
Driven by an increase in software and products revenue
Software and products revenue represented 49% of our total revenue in the three months ended December 31, 2021 and 47% of our total revenue in the three months ended December 31, 2020.
Larger deal revenue (deals greater than $0.1 million) represented 76% of our software and products revenue in the three months ended December 31, 2021 and 68% of our software and products revenue in the three months ended December 31, 2020.
Software and products revenue increased $10.0 million, or 11%, as a result of the following:
An increase of $14.4 million, or 24%, in larger deal revenue.
The increase in larger deal revenue was due to a 20% increase in the volume of larger deal revenue transactions. There were 225 larger deal revenue transactions for the three months ended December 31, 2021, up from 187 deals for the three months ended December 31, 2020.
The average dollar amount of larger deal revenue transactions was approximately $332 thousand and $322 thousand for the three months ended December 31, 2021 and 2020, respectively, representing a 3% increase.
This increase was partially offset by a decrease of $4.4 million in transactions less than $0.1 million.
Services revenue represented 51% of our total revenue in the three months ended December 31, 2021 and 53% of our total revenue in the three months ended December 31, 2020. Services revenue increased $4.4 million primarily due to the following:
An increase of $8.1 million in other services revenue, driven primarily by the year over year increase in revenue from Metallic.
This increase is partially offset by a decrease of $3.7 million in revenue from customer support agreements.
We track software and products revenue on a geographic basis. The geographic regions that we track are the Americas (United States, Canada, Latin America), EMEA (Europe, Middle East, Africa) and APJ (Australia, New Zealand, Southeast Asia, China, Japan). Americas, EMEA and APJ represented 58%, 34% and 8% of total software and products revenue, respectively, for the three months ended December 31, 2021. Software and products revenue increased year over year by 32% in the Americas and declined by 1% in EMEA and 30% in APJ.
The increase in Americas software and products revenue was primarily the result of a 45% increase in larger deal transactions revenue driven by an increase in the volume of larger deal transactions.
EMEA software and products revenue decreased as a result of an 18% decrease in revenue on deals under $0.1 million partially offset by an increase in larger deal transactions.
The decrease in APJ was the result of larger deal transactions decreasing versus the prior year period. The prior year period included several relatively large transactions.
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Our software and products revenue in EMEA and APJ is subject to changes in foreign exchange rates as more fully discussed above in the “Foreign Currency Exchange Rates’ Impact on Results of Operations” section.

Cost of Revenues and Gross Margin ($ in millions)

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Total cost of revenues increased $1.6 million, and represented 15% of our total revenues for both the three months ended December 31, 2021 and December 31, 2020.
Cost of software and products revenue decreased $2.6 million and represented 4% of our total software and products revenue for the three months ended December 31, 2021 compared to 8% for the three months ended December 31, 2020. The decrease was the result of reduced sales of hardware associated with our appliances, as well as reduced software royalties associated with sales of HyperScale appliances and software. Beginning with the launch of HyperScale X in mid fiscal 2021, we began transitioning to a software only model. HyperScale X has also reduced software royalties relative to prior versions of HyperScale.
Cost of services revenue increased $4.2 million, representing 25% of our total services revenue for the three months ended December 31, 2021 compared to 22% for the three months ended December 31, 2020. The increase in cost of services revenue primarily related to an increase in the cost of infrastructure related to Metallic.











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Operating Expenses ($ in millions)
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Sales and marketing expenses increased $4.7 million, or 6%, primarily due to increases in employee compensation and sales commissions associated with increased revenue relative to the same period in the prior year.
Research and development expenses increased $3.6 million, or 10%, as a result of an increase in employee compensation and related expenses attributable to the expansion of our engineering group.
The increase in employee compensation included an increase in stock-based compensation of $2.9 million compared to prior year.
Investing in research and development has been a priority for Commvault, and we anticipate continued spending related to the development of our data and information management software applications.
General and administrative expenses increased $6.4 million, or 28%, primarily due to the following:
Increase in employee compensation and related costs relative to the same time in the prior year.
Stock-based compensation increased $4.1 million compared to the prior year.
Increase in legal expenses for legal costs related to intellectual property matters.
Depreciation and amortization expense increased $0.1 million, from $2.3 million in the three months ended December 31, 2020 to $2.5 million in the three months ended December 31, 2021.

Income Tax Expense
Income tax expense was $3.0 million in the three months ended December 31, 2021 compared to expense of $1.2 million in the three months ended December 31, 2020. The income tax expense for the three months ended December 31, 2021 and 2020 related primarily to current foreign taxes.



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Nine months ended December 31, 2021 compared to nine months ended December 31, 2020
Revenues (in millions)
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Total revenues increased $31.5 million, or 6%.
Driven by an increase in software and products revenue.
Software and products revenue represented 45% of our total revenue in both the nine months ended December 31, 2021 and December 31, 2020.
Larger deal revenue (deals greater than $0.1 million) represented 71% of our software and products revenue in the nine months ended December 31, 2021 and 69% of our software and products revenue in the nine months ended December 31, 2020.
Software and products revenue increased $18.5 million, or 8%, as a result of the following:
An increase of $18.2 million, or 11%, in larger deal revenue. This was driven by an increase of 21% in the volume of larger deal revenue transactions, which included 573 deals for the nine months ended December 31, 2021, up from 475 deals for the nine months ended December 31, 2020.
The average dollar amount of larger deal revenue transactions was approximately $317 thousand and $344 thousand for the nine months ended December 31, 2021 and 2020, respectively, an 8% decrease. The prior year included a high seven-figure transaction that significantly impacted the average dollar amount per transaction.
An increase of $0.3 million in transactions less than $0.1 million.
Services revenue represented 55% of our total revenue in both the nine months ended December 31, 2021 and December 31, 2020. Services revenue increased $13.0 million primarily due to the following:
An increase of $18.3 million in other services revenue, driven primarily by the year over year increase in revenue from Metallic.
This increase was partially offset by a decrease of $5.3 million in revenue from customer support agreements.
We track software and products revenue on a geographic basis. The geographic regions that are tracked are the Americas (United States, Canada, Latin America), EMEA (Europe, Middle East, Africa) and APJ (Australia, New Zealand, Southeast Asia, China, Japan). Americas, EMEA and APJ represented 60%, 30% and 10% of total software and products revenue, respectively, for the nine months ended December 31, 2021. Software and products revenue increased year over year by 15% in the Americas and 3% in EMEA and declined 13% in APJ.
The increase in Americas software and products revenue was primarily the result of a 15% increase in larger deal transactions revenue driven by an increase in the volume of larger deal transactions.
EMEA software and products revenue increased as a result of a 12% increase in revenue on larger deal transactions, partially offset by a decrease in transactions less than $0.1 million.
The decrease in APJ was the result of a decrease in larger deal transactions compared to the same period in the prior year.

Our software and products revenue in EMEA and APJ is subject to changes in foreign exchange rates as more fully discussed above in the “Foreign Currency Exchange Rates’ Impact on Results of Operations” section.

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Cost of Revenues and Gross Margin ($ in millions)

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Total cost of revenues increased $2.0 million and represented 15% of our total revenues for both the nine months ended December 31, 2021 and December 31, 2020.
Cost of software and products revenue decreased $11.2 million and represented 4% of our total software and products revenue for the nine months ended December 31, 2021 compared to 9% for the nine months ended December 31, 2020. The decrease was the result of reduced sales of hardware associated with our appliances as well as reduced software royalties associated with sales of HyperScale appliances and software. Beginning with the launch of HyperScale X in mid fiscal 2021, we began transitioning to a software only model. HyperScale X also has reduced software royalties relative to prior versions of HyperScale.
Cost of services revenue increased $13.2 million, representing 24% of our total services revenue for the nine months ended December 31, 2021 compared to 20% for the nine months ended December 31, 2020. The increase in cost of services revenue related to an increase in the cost of infrastructure related to Metallic, as well as an increase in employee compensation and related expenses compared to the prior year due to temporary pay cuts enacted in 2021.













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Operating Expenses ($ in millions)
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