# COMMVAULT SYSTEMS INC (CVLT) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from COMMVAULT SYSTEMS INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1169561/000116956124000039/cvlt-20240331.htm
Accession: 0001169561-24-000039
Filing date: 2024-05-13
Report date: 2024-03-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/CVLT/
All MD&A years: /company/CVLT/mda/
Previous year: /company/CVLT/mda/fy2023/ (FY 2023)
Next year: /company/CVLT/mda/fy2025/ (FY 2025)

Item 7. 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 Annual Report on Form 10-K. 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” and elsewhere in this Annual Report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements. For discussion comparing the period ended March 31, 2023 to March 31, 2022, please refer to our Annual Report on Form 10-K, filed with the SEC on May 5, 2023.

Overview

Incorporated in Delaware in 1996, Commvault Systems, Inc. provides its customers with a scalable platform that enhances customers' cyber resiliency by protecting their data in a world of increasing threats. We provide these products and services for their data across many types of environments, including on-premises, hybrid and multi-cloud. Our offerings are delivered via self-managed software, software-as-a-service ("SaaS"), integrated appliances, or managed by partners. Customers use our Commvault Cloud platform to protect themselves from threats like ransomware and recover their data efficiently.

Industry

Our industry continues to go through accelerating changes as the result of compounding data growth, increasing security threats, and the introduction of new technologies. These changes are shifting the demands on the importance of resilience for the modern enterprise. Companies now require a comprehensive cyber resilience platform that simplifies and manages these forces holistically. Commvault Cloud is designed to secure and accelerate the recovery so that data can be restored from anywhere to anywhere, rapidly, reliably, and at scale.

Sources of Revenues

We generate revenues through subscription arrangements, perpetual software licenses, customer support contracts and other services. A significant portion of our total revenues comes from subscription arrangements, which include both sales of term-based licenses and SaaS offerings. We are focused on these types of recurring revenue arrangements.

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We expect our subscription arrangements will continue to generate revenues from the renewals of term-based licenses and SaaS offerings sold in prior years. Any of our pricing models (capacity, instance based, etc.) can be sold via a subscription arrangement, either through term-based licensing or hosted services. In term-based license arrangements, the customer has the right to use the software over a designated period of time. The capacity of the license is fixed and the customer has made an unconditional commitment to pay. Software revenue in these arrangements is generally recognized when the software is delivered. In SaaS offerings, customers use hosted software over the contract period without taking possession of the software. Revenue related to SaaS is recognized ratably over the contract period.

We sell 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, OEMs and marketplaces. Subscription revenue generated through indirect distribution channels accounted for approximately 90% of total subscription revenue in recent fiscal years. Subscription revenue generated through direct distribution channels accounted for approximately 10% of total subscription revenue in recent fiscal years. 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 subscription revenue generated through our direct distribution channels from time-to-time. We believe that the growth of our subscription revenue, derived from both our indirect channel partners and direct sales force, are key attributes to our long-term growth strategy. We intend 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 products and services could have a material adverse effect on our revenues and results of operations.

We have a non-exclusive distribution agreement with Arrow pursuant to which Arrow's primary role is to enable a more efficient and effective distribution channel for our solutions by managing our resellers and leveraging their own industry experience. We generated 36% of our total revenues through Arrow in fiscal 2024, and 37% of our total revenues in both fiscal 2023 and fiscal 2022. If Arrow were to discontinue or reduce the sales of our solutions or if our agreement with Arrow was terminated, and if we were unable to take back the management of our reseller channel or find another distributor to replace Arrow, there could be a material adverse effect on our future business.

Our customer support revenue includes support contracts tied to our software products. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support, and other premium support offerings, for both term-based software license and perpetual software license arrangements. We sell our customer support contracts as a percentage of net software. 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 one to three years, but can range between one and five years.

Our other services revenue consists primarily of professional service offerings, including consultation, assessment and design, installation services, and customer education. Revenues from other services can vary period over period based on the timing services are delivered and are typically recognized as the services are performed.

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Description of Costs and Expenses

Our cost of revenues is as follows:

•Cost of Subscription Revenue, consists primarily of the cost of third-party royalties and other costs such as media, manuals, translation and distribution costs, and hardware associated with our appliances as well as third-party hosting fees related to our SaaS offerings;

•Cost of Perpetual License Revenue, consists primarily of the cost of third-party royalties and other costs such as media, manuals, translation and distribution costs;

•Cost of Customer Support Revenue, consists of salary and employee benefit costs in providing customer support services; and

•Cost of Other Services Revenue, consists of salary and employee benefit costs in providing professional services.

Our operating expenses are as follows:

•Sales and Marketing, consists primarily of salaries, commissions, employee benefits, stock-based compensation and other direct and indirect business expenses, including travel and related expenses, sales promotion expenses, public relations expenses and costs for marketing materials and other marketing events (such as trade shows and advertising);

•Research and Development, which is primarily the expense of developing new software applications and modifying existing software applications, consists principally of salaries, stock-based compensation and benefits for research and development personnel and related expenses; contract labor expense and consulting fees as well as other expenses associated with the design, certification and testing of our software applications; and legal costs associated with the patent registration of such software applications;

•General and Administrative, consists primarily of salaries, stock-based compensation and benefits for our executive, accounting, human resources, legal, information systems and other administrative personnel. Also included in this category are other general corporate expenses, such as outside legal and accounting services, compliance costs and insurance; and

•Depreciation and Amortization, consists of depreciation expense for computer equipment we use for information services and in our development and test labs, amortization of intangible assets, and in fiscal years 2023 and 2022, depreciation for our owned corporate headquarters.

Foreign Currency Exchange Rates’ Impact on Results of Operations

Sales outside the United States were 48% of our total revenue for fiscal 2024, 47% for fiscal 2023 and 48% for fiscal 2022. 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 fiscal 2023, our total revenues would have been lower by $4.1 million, our cost of revenues would have been higher by $0.1 million, and our operating expenses would have been lower by $1.4 million from non-U.S. operations for fiscal 2024.

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 $2.4 million and $1.2 million in fiscal 2024 and fiscal 2023, respectively, and insignificant losses in fiscal 2022.

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Critical Accounting Policies

In presenting our consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"), we are required to make estimates and judgments that affect the amounts reported therein. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate. Actual results may differ significantly from these estimates. 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 may 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. The following is a description of these critical accounting policies.

Revenue Recognition

We account for revenue in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. Our revenue recognition policies require us to make significant judgments and estimates. In applying our revenue recognition policy, we must determine which portions of our revenue are recognized currently (generally software related revenue) and which portions must be deferred and recognized in future periods (generally SaaS, customer support, and other services revenue). We analyze various factors including, but not limited to, the selling price of undelivered services when sold on a stand-alone basis, our pricing policies, the credit-worthiness of our customers, and contractual terms and conditions in helping us to make such judgments about revenue recognition. Changes in judgment on any of these factors could materially impact the timing and amount of revenue recognized in a given period. We recognize revenue net of sales tax.

We generate revenues through subscription arrangements, perpetual software licenses, customer support contracts and other services. A significant portion of our total revenues comes from subscription arrangements, which include both sales of term-based licenses and SaaS offerings. We are focused on these types of recurring revenue arrangements.

We expect our subscription arrangements will continue to generate revenues from the renewals of term-based licenses and SaaS offerings sold in prior years. Any of our pricing models (capacity, instance based, etc.) can be sold via a subscription arrangement, either through term-based licensing or hosted services. In term-based license arrangements, the customer has the right to use the software over a designated period of time. The capacity of the license is fixed and the customer has made an unconditional commitment to pay. Software revenue in these arrangements is generally recognized when the software is delivered. In SaaS offerings, customers use hosted software over the contract period without taking possession of the software. Revenue related to SaaS is recognized ratably over the contract period.

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. Revenues for both perpetual and term-based 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.

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We also offer 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. Our appliances are almost exclusively sold via a software only model in which we sell software to a third party, which assembles an integrated appliance that is sold to end user customers. As a result, the revenues and costs associated with hardware are usually not included in our financial statements.

Our customer support revenue includes support contracts tied to our software products. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support, and other premium support offerings, for both term-based software license and perpetual software license arrangements. We sell our customer support contracts as a percentage of net software. 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 one to three years, but can range between one and five years.

Our other services revenue consists primarily of professional service offerings, including consultation, assessment and design, installation services, and customer education. Revenues from other services can vary period over period based on the timing services are delivered and are typically recognized as the services are performed.

Most of our contracts with customers contain multiple performance obligations. For these contracts, we evaluate and account for individual performance obligations separately if they are determined to be distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software licenses (both perpetual and term-based) are typically estimated using the residual approach. Standalone selling prices for SaaS, customer support contracts, and other services are typically estimated based on observable transactions when these services are sold on a standalone basis.

Our typical performance obligations include the following:

[[GREPCENT_TABLE]]
[["Performance Obligation","When Performance Obligation is Typically Satisfied","When Payment is Typically Due","How Standalone Selling Price is Typically Estimated"],["Subscription"],["Term-based software licenses","Upon 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"],["Software-as-a-service (SaaS)","Ratably over the course of the contract (over time)","Annually or at the beginning of the contract period","Observable in transactions without multiple performance obligations"],["Perpetual License"],["Perpetual software licenses","Upon shipment or made available for download (point in time)","Within 90 days of shipment","Residual approach"],["Customer Support"],["Software updates","Ratably over the course of the support contract (over time)","At the beginning of the contract period","Observable in renewal transactions"],["Customer support","Ratably over the course of the support contract (over time)","At the beginning of the contract period","Observable in renewal transactions"],["Other Services"],["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 services","When the class is taught (point in time)","Within 90 days of services being performed","Observable in transactions without multiple performance obligations"]]
[[/GREPCENT_TABLE]]

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Accounting for Income Taxes

Under ASC 740, deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts. Valuation allowances are established when, in our judgment, it is more likely than not that deferred tax assets will not be realized. In assessing the need for a valuation allowance, we considered all available objective and verifiable evidence both positive and negative, including historical levels of pre-tax income (loss) both on a consolidated basis and tax reporting entity basis, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies. In prior years, we believed that it was more likely than not that we would not realize the benefits of our gross deferred tax assets and therefore had recorded a valuation allowance to reduce the carrying value of those deferred tax assets, net of the impact of the reversals of taxable temporary differences, to zero. As and for the fiscal year ended March 31, 2024, we believe that it is more likely than not that we will realize the benefits of our gross deferred tax assets and therefore we have released the previously recorded valuation allowance, resulting in an income tax benefit in the current period. In the future, changes to our estimates regarding the realizability of our gross deferred tax assets could materially impact our results of operations.

We conduct business globally and as a result, file income tax returns in the United States and in various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Australia, Canada, Germany, Netherlands and United Kingdom.

Goodwill

We test goodwill for impairment at least annually, on January 1, by performing a qualitative assessment of whether the fair value of each reporting unit or asset exceeds its carrying amount. We have one reporting unit. Goodwill is tested at this reporting unit level. This requires us to assess and make judgments regarding a variety of factors which impact the fair value of the reporting unit or asset being tested, including business plans, anticipated future cash flows, economic projections and other market data. Because there are inherent uncertainties involved in these factors, significant differences between these estimates and actual results could result in future impairment charges and could materially impact our future financial results. During the fourth quarter of fiscal 2024, we performed a qualitative impairment test for goodwill and concluded that the carrying amount of the reporting unit does not exceed the fair value. No goodwill impairment charges were recorded for the years ended March 31, 2024, 2023, and 2022.

Results of Operations

Amounts reported in millions are rounded based on the amounts in thousands. As a result, the sum of the components reported in millions may not equal the total amount reported in millions due to rounding.

Fiscal year ended March 31, 2024 compared to fiscal year ended March 31, 2023

Revenues (in millions)

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–Total revenues increased $54.7 million, or 7% year over year, driven primarily by an increase in subscription revenue, offset by decreases in perpetual license and customer support revenues. We remain focused on selling subscription arrangements through both term-based software licenses and SaaS offerings.

–Subscription revenue increased $81.4 million, or 23% year over year, driven primarily by an 87% increase in our SaaS revenue compared to the same period in the prior year. Term-based license revenue increased 8% year over year, due to an increase in the number of larger term-based license transactions (deals greater than $0.1 million) period over period. Subscription revenue accounted for 51% of total revenues in fiscal 2024 compared to 44% in fiscal 2023.

–Perpetual license revenue decreased $17.3 million, or 23% year over year. This decrease is primarily a result of our preferred route to market which is led by the sale of term-based licenses. Perpetual licenses are generally only sold in certain verticals and geographies. Perpetual license revenue accounted for 7% of total revenues in fiscal 2024 compared to 10% in fiscal 2023.

–Customer support revenue decreased $6.5 million, or 2% year over year, driven by a $32.4 million decrease in customer support revenue attached to perpetual license support renewals, partially offset by a $25.9 million increase in customer support allocated to term-based license arrangements.

–Other services revenue decreased $2.9 million, or 6% year over year. Changes in other services revenue can vary period over period primarily due to the timing professional services are delivered.

We track total revenues on a geographic basis. Our Americas region includes the United States, Canada, and Latin America. Our International region primarily includes Europe, Middle East, Africa, Australia, India, Southeast Asia and China. Americas and International represented 59% and 41% of total revenues, respectively, for the fiscal year ended March 31, 2024. Total revenues increased 6% and 8% in the Americas and International, respectively.

▪Total revenues in the Americas was impacted by a 24% increase in subscription revenue, offset by a 45% decrease in perpetual license revenue, driven by the shift from selling perpetual licenses to subscription arrangements. Customer support and other services revenues declined 5% and 9%, respectively.

▪The increase in International total revenues was primarily due to a 21% increase in subscription revenue, offset by an 8% decrease in perpetual license revenue. Customer support revenue increased 2% year over year. Other services revenue was flat year over year.

Our total revenues in International is subject to changes in foreign exchange rates as further 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)

[[GREPCENT_TABLE]]
[["","","Year Ended March 31,"],["","","2024","","2023"],["","","Cost of Revenues","Gross Margin","","Cost of Revenues","Gross Margin"],["Subscription","","$","58.4","","86","%","","$","44.5","","87","%"],["Perpetual license","","2.2","","96","%","","2.4","","97","%"],["Customer support","","60.8","","80","%","","58.3","","81","%"],["Other services","","30.3","","32","%","","30.2","","37","%"],["Total","","$","151.6","","82","%","","$","135.4","","83","%"]]
[[/GREPCENT_TABLE]]

–Total cost of revenues increased $16.2 million and represented 18% and 17% of our total revenues in fiscal 2024 and fiscal 2023, respectively.

–Cost of subscription revenue increased $13.9 million, representing 14% of our total subscription revenue in fiscal 2024 compared to 13% in fiscal 2023. The year over year increase is primarily the result of an increase in the cost of infrastructure related to growth in our SaaS offerings.

–Cost of perpetual license revenue decreased $0.3 million and represented 4% of our total perpetual revenue in fiscal 2024 compared to 3% in fiscal 2023.

–Cost of customer support revenue increased $2.5 million and represented 20% of our total customer support revenue in fiscal 2024 compared to 19% in fiscal 2023.

–Cost of other services revenue increased $0.1 million, representing 68% of our total other services revenue in fiscal 2024 compared to 63% in fiscal 2023. The increase in cost of other services revenue was driven by timing of the delivery of certain professional services.

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Operating Expenses ($ in millions)

–Sales and marketing expenses increased $14.2 million, or 4%, driven by increases in employee compensation and sales commissions associated with increased revenues relative to the same period in the prior year as well as increases in marketing spend related to Commvault's SHIFT event in New York City. These increases were partially offset by a $6.5 million decrease in stock-based compensation.

–Research and development expenses decreased $9.5 million, or 7%, driven by decreases in employee compensation and related expenses, including a $7.0 million decrease in stock-based compensation. Investing in research and development remains a priority for Commvault and we anticipate continued responsible spending related to the development of our software applications and hosted services.

–General and administrative expenses increased $9.8 million, or 9%, primarily driven by a $4.4 million increase in employee compensation and related expenses including a $1.3 million increase in stock-based compensation year over year. In addition, we recorded $2.4 million in foreign currency transaction losses compared to $1.2 million in foreign currency transaction losses recorded in the prior fiscal year.

–Restructuring:  Our restructuring plan, initiated in the fourth quarter of fiscal 2024, is intended to enhance customer satisfaction through the reorganization and redesign of our customer success functions. The realignment of the customer success structure aims to optimize operational efficiency and improve continuity for our customers through the pre-sales and post-sales experience. Restructuring expenses were $4.5 million for the year ended March 31, 2024. These charges relate primarily to severance and related costs associated with headcount reductions as well as costs related to office termination and exit charges. These expenses included $1.5 million in fiscal 2024 of stock-based compensation related to modifications of existing awards granted to certain employees impacted by the plan. We anticipate the restructuring plan will be completed in the second half of fiscal 2025.

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In the fourth quarter of fiscal 2022 we initiated a restructuring plan which was completed in fiscal 2023. It was aimed to increase efficiency in our sales, marketing and distribution functions as well as reduce costs across all functional areas. Restructuring expenses were $15.5 million for the year ended March 31, 2023. These restructuring charges relate primarily to severance and related costs associated with headcount reductions. These expenses included $2.6 million in fiscal 2023 of stock-based compensation related to modifications of existing awards granted to certain employees impacted by the plan.

Risks associated with our restructuring plans include additional unexpected costs, adverse effects on employee morale and the failure to meet operational and growth targets due to the loss of key employees, any of which may impair our ability to achieve anticipated results of operations or otherwise harm our business.

–Depreciation and amortization expense decreased $2.9 million, from $9.3 million in fiscal 2023 to $6.4 million in fiscal 2024, driven by the reclassification of our owned corporate headquarters as assets held for sale in the fourth quarter of fiscal 2023.

–Impairment charges: During the fourth quarter of fiscal 2023, we entered into an exclusive agreement to sell our owned corporate headquarters in Tinton Falls, New Jersey. The property was reclassified as assets held for sale and the previous carrying amount was written down to its estimated fair value, less estimated costs to sell, resulting in a noncash impairment charge of $53.5 million.

Interest Income

Interest income increased $4.1 million, from $1.3 million in fiscal 2023 to $5.4 million in fiscal 2024 primarily as a result of increases in interest rates and the amount of invested funds subject to interest income.

Interest Expense

Interest expense was $0.4 million in fiscal 2024 compared to $0.5 million in fiscal 2023. These charges relate primarily to our revolving credit facility. Refer to Note 16 of the notes to the consolidated financial statements for further discussion on the revolving credit facility.

Other Income (Expense)

Other income was $3.3 million in fiscal 2024 compared to expense of $0.3 million in fiscal 2023. Other income for the fiscal year ended March 31, 2024 includes a $1.7 million gain on a non-refundable escrow payment, $1.6 million related to U.S. business incentive programs and insignificant changes in fair value related to our investments in equity securities.

Income Tax Expense (Benefit)

Income tax benefit was $85.3 million in fiscal 2024 compared to expense of $20.4 million in fiscal 2023. The income tax benefit for the fiscal year ended March 31, 2024 relates primarily to the release of the previously recorded valuation allowance against certain deferred tax assets in the U.S. and foreign jurisdictions.

Liquidity and Capital Resources

In recent fiscal years, our principal source of liquidity has been cash provided by operations. As of March 31, 2024, our cash and cash equivalents balance was $312.8 million, of which approximately $214.2 million was held outside of the United States by our foreign legal entities. These balances are dispersed across approximately 35 international locations around the world. We believe that such dispersion meets the current and anticipated future liquidity needs of our foreign legal entities. In the event we need to repatriate funds from outside of the United States, such repatriation would likely be subject to restrictions by local laws and/or tax consequences, including foreign withholding taxes.

On December 13, 2021, we entered into a five-year $100 million senior secured revolving credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A. 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

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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 the 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 March 31, 2024, there were no borrowings under the Credit Facility and we were in compliance with all covenants.

During the fiscal year ended March 31, 2024, we repurchased $184.0 million of common stock, or approximately 2.5 million shares. On April 18, 2024, the Board of Directors approved an increase in our share repurchase program so that $250.0 million was available. The Board's authorization has no expiration date.

A summary of the cash used for the stock repurchase program consists of the following:

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[[/GREPCENT_TABLE]]

Our summarized cash flow information is as follows (in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended March 31,"],["","","2024","","2023"],["Net cash provided by operating activities","","$","203,798","","","$","170,288"],["Net cash used in investing activities","","(5,521)","","","(5,286)"],["Net cash used in financing activities","","(170,581)","","","(135,579)"],["Effects of exchange rate \u2014 changes in cash","","(2,720)","","","(9,152)"],["Net increase in cash and cash equivalents","","$","24,976","","","$","20,271"]]
[[/GREPCENT_TABLE]]

    - Net cash provided by operating activities was impacted by:

•Fiscal 2024: net income adjusted for the impact of non-cash charges and increases in deferred revenue, partially offset by increases in accounts receivable.

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•Fiscal 2023: net loss adjusted for the impact of non-cash charges, including the impairment of our owned corporate headquarters and increases in deferred revenue partially offset by decreases in accrued expenses.

    - Net cash used in investing activities was impacted by:

•Fiscal 2024: $4.1 million of capital expenditures and $1.4 million for the purchase of equity securities.

•Fiscal 2023: $3.2 million of capital expenditures and $2.1 million for the purchase of equity securities.

    - Net cash used in financing activities was impacted by:

•Fiscal 2024: $184.0 million used to repurchase shares of our common stock under our repurchase program, partially offset by $13.4 million of proceeds from the exercise of stock options and the Employee Stock Purchase Plan.

•Fiscal 2023: $150.9 million used to repurchase shares of our common stock under our repurchase program and $0.1 million of debt issuance costs paid, partially offset by $15.4 million of proceeds from the exercise of stock options and the Employee Stock Purchase Plan.

Working capital decreased $30.6 million from $140.8 million as of March 31, 2023 to $110.2 million as of March 31, 2024. The decrease in working capital is primarily due to increases in accrued liabilities and the current portion of deferred revenue, partially offset by increases in cash and cash equivalents and accounts receivable.

We believe that our existing cash, cash equivalents and our cash from operations will be sufficient to meet our anticipated cash needs for working capital, income taxes, capital expenditures and potential stock repurchases for at least the next twelve months. We may seek additional funding through public or private financings or other arrangements during this period. Adequate funds may not be available when needed or may not be available on terms favorable to us, or at all. If additional funds are raised by issuing equity securities, dilution to existing stockholders will result. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to fund additional interest expense. If funding is insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

Summary Disclosures about Contractual Obligations and Commercial Commitments

Our material capital commitments consist of obligations under facilities and operating leases. Some of these leases have free or escalating rent payment provisions. Refer to Note 15 of the notes to the consolidated financial statements for further discussion on operating leases.

We have certain software royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally based on a fixed cost per unit shipped or a fixed fee for unlimited units shipped over a designated period. Royalty expense, included in cost of subscription and perpetual license revenues, was $9.7 million in fiscal 2024 and $9.3 million in fiscal 2023.

We offer a 90-day limited product warranty for our software. To date, costs relating to this product warranty have not been material.

Off-Balance Sheet Arrangements

As of March 31, 2024, we did not have off-balance sheet financing arrangements, including any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

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Indemnifications

Certain of our software licensing agreements contain certain provisions that indemnify our customers from any claim, suit or proceeding arising from alleged or actual intellectual property infringement. These provisions continue in perpetuity along with our software licensing and SaaS agreements. We have never incurred a liability relating to one of these indemnification provisions in the past and we believe that the likelihood of any future payout relating to these provisions is remote. Therefore, we have not recorded a liability during any period related to these indemnification provisions.

Impact of Recently Issued Accounting Standards

See Note 2 of the notes to the consolidated financial statements for a discussion of the impact of recently issued accounting standards.