Pivotal Reports Third Quarter Fiscal Year 2019 Financial Results

  • Subscription revenue grew 53% year over year; Total revenue grew 30% year over year
  • Subscription customers increased to 368; 17% growth year over year
  • Dollar-based net expansion rate of 150%

SAN FRANCISCO--()--Pivotal Software, Inc. (NYSE: PVTL), a leading cloud-native platform provider, today reported results for the fiscal 2019 third quarter ended November 2, 2018.

“We generated strong revenue growth in our third quarter and continued to deliver innovative products across our portfolio. We also saw meaningful transactions with both new and existing customers as organizations across industries continue to choose Pivotal as their strategic partner for digital transformation,” said Rob Mee, CEO of Pivotal Software. “While enterprises face a fast moving market environment and a complex technology landscape, we remain confident that our unique combination of Pivotal Cloud Foundry and Labs provide customers with a proven model to innovate and modernize at scale.”

Third Quarter Fiscal Year 2019 Financial Results

Revenue: Subscription revenue was $100.8 million, an increase of 53% year over year. Total revenue was $168.1 million, an increase of 30% year over year.

Operating Loss: GAAP operating loss was $35.9 million, or 21% of total revenue, compared to a loss of $36.5 million in Q3 of last year. Non-GAAP operating loss was $14.8 million, or 9% of total revenue, compared to a loss of $25.0 million year over year.

Net Loss: GAAP net loss was $34.9 million, compared to a loss of $39.3 million year over year. GAAP net loss per share was $0.13, compared to a loss of $0.57 in Q3 of last year. Non-GAAP net loss was $13.8 million, compared to a loss of $27.9 million year over year. Non-GAAP net loss per share was $0.05, compared to a loss of $0.13 in Q3 of last year.

Cash Flow: Operating cash flow for the quarter was negative $36.2 million compared to negative operating cash flow of $39.8 million in Q3 of last year.

Cash and cash equivalents were $664.8 million as of November 2, 2018.

Recent Business Highlights

  • Subscription customers grew 17% year over year to 368 in Q3
  • Dollar-based net expansion rate was 150%
  • Released new features to Pivotal Cloud Foundry to help enterprises achieve meaningful business outcomes through the continuous delivery of high-quality software and simplification of operations including:
    • PAS 2.3 added greater support for the .NET Framework and simplifies how development teams securely share data across microservices
    • PKS 1.2 expanded multi-cloud support to include AWS and includes the latest Kubernetes release maintaining constant compatibility with Google Kubernetes Engine
  • PKS winner of CRN’s 2018 Tech Innovator award

Financial Outlook

For the fourth quarter of fiscal 2019, Pivotal currently expects:

  • Subscription revenue of $109.5 to $110.5 million
  • Total revenue of $169 to $171 million
  • Non-GAAP loss from operations of $26 to $25 million
  • Non-GAAP net loss per share of 10¢ to 9¢ assuming weighted average shares outstanding of approximately 264 million

For the full fiscal year 2019, Pivotal currently expects:

  • Subscription revenue of $398 to $399 million
  • Total revenue of $657 to $659 million
  • Non-GAAP loss from operations of $76.5 to $75.5 million
  • Non-GAAP net loss per share of 32¢ to 31¢, assuming weighted average shares outstanding of approximately 251 million

Pivotal has not reconciled these forward-looking non-GAAP measures to comparable forward-looking GAAP measures because of the potential variability and uncertainty of incurring these costs and expenses in the future. Accordingly, a reconciliation is not available without unreasonable effort.

Conference Call and Webcast Information

Pivotal will host a conference call at 2:00pm PDT (5:00pm EDT) today to discuss our financial results. A live audio webcast of the conference call will be accessible on Pivotal’s investor relations web page at https://pivotal.io/investors. A replay of the webcast will be available following the conference call.

About Pivotal

Pivotal combines our cloud-native platform, developer tools, and unique methodology to help the world’s largest companies transform the way they build and run their most important applications. Our technology is used by Global 2000 companies to achieve strategic advantages in software development and IT operations. Learn more at pivotal.io.

Non-GAAP Financial Measures

Reconciliations of non-GAAP financial measures to the most directly comparable financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled "About Non-GAAP Financial Measures."

Key Metric Definitions

Subscription Customers: Pivotal defines the number of subscription customers as the organizations that have a subscription contract for Pivotal’s software resulting in at least $50,000 of annual revenue in that period.

Dollar-Based Net Expansion Rate: Pivotal’s dollar-based net expansion rate compares its subscription revenue from a common group of customers across comparable periods. Pivotal calculates its dollar-based net expansion rate for all periods on a trailing four-quarter basis.

Forward-Looking Statements

This press release contains statements relating to Pivotal’s expectations, projections, beliefs, and prospects (including statements regarding Pivotal’s financial outlook), which are "forward-looking statements” within the meaning of the federal securities laws and by their nature are uncertain. Words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "plans," and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are not guarantees of future performance, and you are cautioned not to place undue reliance on these forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of many factors, including but not limited to: (i) Pivotal’s limited operating history as an independent company, which makes it difficult to evaluate Pivotal’s prospects; (ii) the substantial losses Pivotal has incurred and the risks of not being able to generate sufficient revenue to achieve and sustain profitability; (iii) Pivotal’s future success depending in large part on the growth of Pivotal’s target markets; (iv) Pivotal’s future growth depending largely on Pivotal Cloud Foundry and Pivotal’s platform-related services; (v) Pivotal’s subscription revenue growth rate not being indicative of Pivotal’s future performance or ability to grow; (vi) Pivotal’s business and prospects being harmed if customers do not renew their subscriptions or expand their use of Pivotal’s platform; (vii) any failure by Pivotal to compete effectively; (viii) Pivotal’s long and unpredictable sales cycles that vary seasonally and which can cause significant variation in the number and size of transactions that can close in a particular quarter; (ix) Pivotal’s lack of control of and inability to predict the future course of open-source technologies, including those used in Pivotal Cloud Foundry; and (x) any security or privacy breaches. All information set forth in this release is current as of the date of this release. These forward-looking statements are based on current expectations and are subject to uncertainties, risks, assumptions, and changes in condition, significance, value and effect as well as other risks disclosed previously and from time to time in documents filed by us with the U.S. Securities and Exchange Commission (SEC), including Pivotal’s prospectus dated April 19, 2018, and filed pursuant to Rule 424(b) under the U.S. Securities Act of 1933, as amended. Additional information will be made available in Pivotal’s quarterly report on Form 10-Q and other future reports that Pivotal may file with the SEC, which could cause actual results to vary from expectations. Pivotal disclaims any obligation to, and does not currently intend to, update any such forward-looking statements, whether written or oral, that may be made from time to time except as required by law.

 
Pivotal Software, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts); (unaudited)
         
Three Months Ended Nine Months Ended
November 2, November 3, November 2, November 3,
  2018       2017     2018       2017  
Revenue:
Subscription $ 100,775 $ 66,050 $ 288,390 $ 184,039
Services   67,368       62,922     199,896       192,153  
Total revenue 168,143 128,972 488,286 376,192
Cost of revenue:
Subscription 7,813 7,627 24,047 22,743
Services   53,179       47,875     157,470       148,136  
Total cost of revenue 60,992 55,502 181,517 170,879
Gross profit 107,151 73,470 306,769 205,313
Operating expenses:
Sales and marketing 70,620 54,295 210,308 159,327
Research and development 51,880 40,232 143,309 119,911
General and administrative   20,546       15,405     57,979       49,182  
Total operating expenses   143,046       109,932     411,596       328,420  
Loss from operations (35,895 ) (36,462 ) (104,827 ) (123,107 )
Other income (expense), net   1,866       (2,101 )   2,412       530  
Loss before provision for income taxes (34,029 ) (38,563 ) (102,415 ) (122,577 )
Provision for income taxes   776       786     549       3,618  
Net loss   (34,805 )     (39,349 )   (102,964 )     (126,195 )
Less: Net loss (income) attributable to non-controlling interest   (45 )     -     (8 )     (84 )
Net loss attributable to Pivotal $ (34,850 )   $ (39,349 ) $ (102,972 )   $ (126,279 )
Net loss per share attributable to common stockholders, basic and diluted $ (0.13 )   $ (0.57 ) $ (0.50 )   $ (1.85 )
Weighted average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted   258,408       68,753     207,072       68,345  
 
Pivotal Software, Inc.
Condensed Consolidated Balance Sheets
(in thousands); (unaudited)
   
November 2, February 2,
  2018       2018  
Assets
Current assets:
Cash and cash equivalents $ 664,804 $ 73,012
Accounts receivable, less allowance for doubtful accounts of $4,920 and $3,264 as of November 2, 2018 and February 2, 2018, respectively 163,848 210,677
Due from Parent 1,459 31,096
Deferred sales commissions, current 32,891 38,937
Other assets, current   16,498       13,012  
Total current assets 879,500 366,734
Property, plant and equipment, net 28,799 31,985
Intangible assets, net 20,120 26,651
Goodwill 696,226 696,226
Deferred income taxes 255 463
Deferred sales commissions, noncurrent 24,238 24,890
Other assets, noncurrent   4,416       6,448  
Total assets $ 1,653,554     $ 1,153,397  
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable $ 15,344 $ 17,214
Due to Parent 11,172 15,451
Accrued expenses 46,860 64,251
Income taxes payable 1,396 1,748
Deferred revenue, current 246,136 260,341
Other liabilities, current   10,274       1,109  
Total current liabilities 331,182 360,114
Deferred revenue, noncurrent 60,946 57,126
Deferred income taxes 111 427
Debt, noncurrent - 20,000
Other liabilities, noncurrent   8,980       7,931  
Total liabilities   401,219       445,598  
Redeemable convertible preferred stock - 1,248,327
Stockholders’ equity (deficit):
Class A common stock 867 43
Class B common stock 1,755 650
Additional paid-in capital 2,489,039 595,113
Accumulated deficit (1,245,572 ) (1,142,600 )
Accumulated other comprehensive income   5,526       5,554  
Total Pivotal stockholders’ equity (deficit) 1,251,615 (541,240 )
Non-controlling interest   720       712  
Total stockholders’ equity (deficit)   1,252,335       (540,528 )
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $ 1,653,554     $ 1,153,397  
 
Pivotal Software, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands); (unaudited)
         
Three Months Ended Nine Months Ended
November 2, November 3, November 2, November 3,
  2018       2017     2018       2017  
Cash flows from operating activities:
Net loss $ (34,805 ) $ (39,349 ) $ (102,964 ) $ (126,195 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 4,470 5,659 13,824 16,732
Stock-based compensation expense 19,428 8,525 49,233 19,934
Provision for doubtful accounts 1,742 80 2,361 80
Deferred income taxes 258 106 (147 ) 315
Gain on sale of investment - - (3,234 ) -
Other 30 (5 ) 1,491 850
Changes in assets and liabilities:
Accounts receivable (32,445 ) 438 43,895 14,202
Due from Parent 273 (658 ) 37 (658 )
Deferred sales commissions 2,425 782 6,697 3,806
Other assets (301 ) 3,404 (2,758 ) (342 )
Accounts payable (1,494 ) 9,301 (2,041 ) 13,941
Due to Parent (152 ) (10,896 ) (3,337 ) (34,024 )
Deferred revenue 365 (7,826 ) (10,189 ) (15,600 )
Accrued expenses 27 (9,458 ) (16,186 ) 4,010
Other liabilities   4,011       95     9,970       2,181  
Net cash provided by (used in) operating activities   (36,168 )     (39,802 )   (13,348 )     (100,768 )
Cash flows from investing activities:
Additions to property, plant and equipment (2,877 ) (2,591 ) (6,929 ) (11,049 )
Proceeds from sale of investment   -       -     3,234       -  
Net cash used in investing activities   (2,877 )     (2,591 )   (3,695 )     (11,049 )
Cash flows from financing activities:
Proceeds from the initial public offering, net of issuance costs paid - - 544,674 -
Proceeds from the issuance of common stock 32,428 2,615 41,852 6,550
Contribution from DellEMC - - 41,277 25,800
Borrowings on credit facility - (855 ) 15,000 (855 )
Repayments on credit facility   -       -     (35,000 )     -  
Net cash provided by financing activities 32,428 1,760 607,803 31,495
Effect of exchange rate changes on cash and cash equivalents   (287 )     476     1,032       (1,322 )
Net increase (decrease) in cash and cash equivalents (6,904 ) (40,157 ) 591,792 (81,644 )
Cash and cash equivalents at beginning of period   671,708       92,386     73,012       133,873  
Cash and cash equivalents at end of period $ 664,804     $ 52,229   $ 664,804     $ 52,229  
 
Pivotal Software, Inc.
GAAP to Non-GAAP Reconciliation
(in thousands, except percentages and per share amounts); (unaudited)
         
Three Months Ended November 2, 2018
GAAP  

Stock-based
compensation
expense

 

Amortization of
acquired
intangibles

 

Gain on sale of
investment

  Non-GAAP
Cost of subscription revenue $ 7,813 $ (404 ) $ (340 ) $ - $ 7,069
Subscription gross margin 92.2 % 0.4 % 0.3 % - % 93.0 %
Cost of services revenue 53,179 (4,248 ) - - 48,931
Services gross margin 21.1 % 6.3 % - % - % 27.4 %
Gross profit 107,151 4,652 340 - 112,143
Gross margin 63.7 % 2.8 % 0.2 % - % 66.7 %
Sales and marketing 70,620 (5,854 ) (909 ) - 63,857
Research and development 51,880 (5,521 ) - - 46,359
General and administrative 20,546 (3,401 ) (383 ) - 16,762
Total operating expenses 143,046 (14,776 ) (1,292 ) - 126,978
Loss from operations (35,895 ) 19,428 1,632 - (14,835 )
Operating margin (21.3 %) 11.6 % 1.0 % - % (8.8 %)
Other income (expense), net 1,866 - - - 1,866
Net loss attributable to Pivotal $ (34,850 ) $ 19,428 $ 1,632 $ - $ (13,790 )

Net loss per share, basic and diluted (1)

$ (0.13 ) $ (0.05 )

(1) GAAP and Non-GAAP net loss per common share calculated based upon 258,408 basic and diluted weighted average shares outstanding of common stock.

 
Three Months Ended November 3, 2017
GAAP  

Stock-based
compensation
expense

 

Amortization of
acquired
intangibles

 

Gain on sale of
investment

  Non-GAAP
Cost of subscription revenue $ 7,627   $ (162 )   $ (1,318 )   $ -   $ 6,147
Subscription gross margin 88.5 % 0.2 % 2.0 % - % 90.7 %
Cost of services revenue 47,875 (2,055 ) - - 45,820
Services gross margin 23.9 % 3.3 % - % - % 27.2 %
Gross profit 73,470 2,217 1,318 - 77,005
Gross margin 57.0 % 1.7 % 1.0 % - % 59.7 %
Sales and marketing 54,295 (2,574 ) (1,232 ) - 50,489
Research and development 40,232 (2,355 ) - - 37,877
General and administrative 15,405 (1,379 ) (359 ) - 13,667
Total operating expenses 109,932 (6,308 ) (1,591 ) - 102,033
Loss from operations (36,462 ) 8,525 2,909 - (25,028 )
Operating margin (28.3 %) 6.6 % 2.3 % - % (19.4 %)
Other income (expense), net (2,101 ) - - - (2,101 )
Net loss attributable to Pivotal $ (39,349 ) $ 8,525 $ 2,909 $ - $ (27,915 )
Net loss per share, basic and diluted (1) $ (0.57 ) $ (0.13 )

(1) GAAP net loss per common share calculated based upon 68,753 basic and diluted weighted average shares outstanding of common stock. Non-GAAP net loss per common share calculated based upon 216,632 basic and diluted weighted average shares outstanding of common stock.

 
Nine Months Ended November 2, 2018
GAAP  

Stock-based
compensation
expense

 

Amortization of
acquired intangibles

 

Gain on sale of
investment

  Non-GAAP
Cost of subscription revenue $ 24,047   $ (1,042 )   $ (1,204 )   $ -   $ 21,801
Subscription gross margin 91.7 % 0.4 % 0.4 % - % 92.4 %
Cost of services revenue 157,470 (10,726 ) - - 146,744
Services gross margin 21.2 % 5.4 % - % - % 26.6 %
Gross profit 306,769 11,768 1,204 - 319,741
Gross margin 62.8 % 2.4 % 0.2 % - % 65.5 %
Sales and marketing 210,308 (15,112 ) (2,724 ) - 192,472
Research and development 143,309 (13,771 ) - - 129,538
General and administrative 57,979 (8,582 ) (1,149 ) - 48,248
Total operating expenses 411,596 (37,465 ) (3,873 ) - 370,258
Loss from operations (104,827 ) 49,233 5,077 - (50,517 )
Operating margin (21.5 %) 10.1 % 1.0 % - % (10.3 %)
Other income (expense), net 2,412 - - (3,234 ) (822 )
Net loss attributable to Pivotal $ (102,972 ) $ 49,233 $ 5,077 $ (3,234 ) $ (51,896 )
Net loss per share, basic and diluted (1) $ (0.50 ) $ (0.21 )

(1) GAAP net loss per common share calculated based upon 207,072 basic and diluted weighted average shares outstanding of common stock. Non-GAAP net loss per common share calculated based upon 246,615 basic and diluted weighted average shares outstanding of common stock.

 

Nine Months Ended November 3, 2017

GAAP  

Stock-based
compensation
expense

 

Amortization of
acquired
intangibles

 

Gain on sale of
investment

  Non-GAAP
Cost of subscription revenue $ 22,743   $ (342 )   $ (3,936 )   $ -   $ 18,465
Subscription gross margin 87.6 % 0.2 % 2.1 % - % 90.0 %
Cost of services revenue 148,136 (4,560 ) - - 143,576
Services gross margin 22.9 % 2.4 % - % - % 25.3 %
Gross profit 205,313 4,902 3,936 - 214,151
Gross margin 54.6 % 1.3 % 1.0 % - % 56.9 %
Sales and marketing 159,327 (5,926 ) (3,701 ) - 149,700
Research and development 119,911 (5,439 ) - - 114,472
General and administrative 49,182 (3,667 ) (1,069 ) - 44,446
Total operating expenses 328,420 (15,032 ) (4,770 ) - 308,618
Loss from operations (123,107 ) 19,934 8,706 - (94,467 )
Operating margin (32.7 %) 5.3 % 2.3 % - % (25.1 %)
Other income (expense), net 530 - - - 530
Net loss attributable to Pivotal $ (126,279 ) $ 19,934 $ 8,706 $ - $ (97,639 )
Net loss per share, basic and diluted (1) $ (1.85 ) $ (0.45 )

(1) GAAP net loss per common share calculated based upon 68,345 basic and diluted weighted average shares outstanding of common stock. Non-GAAP net loss per common share calculated based upon 216,224 basic and diluted weighted average shares outstanding of common stock.

 
Pivotal Software, Inc.
GAAP to Non-GAAP Weighted Average Shares Outstanding Reconciliation
(in thousands); (unaudited)
       
Three Months Ended Nine Months Ended
November 2, November 3, November 2, November 3,
2018   2017 2018   2017
GAAP weighted average shares outstanding, basic and diluted 258,408 68,753 207,072 68,345
Assumed preferred stock conversion   147,879 39,543   147,879
Non-GAAP weighted average shares outstanding, basic and diluted 258,408 216,632 246,615 216,224
 

About Non-GAAP Financial Measures

To supplement Pivotal’s consolidated financial statements, which are prepared and presented in accordance with GAAP, Pivotal provides investors with certain non-GAAP financial measures, including but not limited to: non-GAAP cost of subscription, non-GAAP cost of services, non-GAAP gross profit, non-GAAP gross margin, non-GAAP sales and marketing expense, non-GAAP research and development expense, non-GAAP general and administrative expense, non-GAAP operating loss, non-GAAP operating margin, non-GAAP net loss, non-GAAP net loss per share, and non-GAAP weighted average shares outstanding. Certain of these non-GAAP financial measures exclude stock-based compensation, amortization of intangible assets and gain on sale of investment. For more information on the comparable GAAP to non-GAAP financial measures, please see the reconciliation table included with this release.

Management believes non-GAAP information is useful in evaluating the operating results, ongoing operations, and for internal planning and forecasting purposes. Management also believes that non-GAAP financial measures provide consistency and comparability with past financial performance and assist investors with comparing Pivotal to other companies some of which use similar non-GAAP financial measures to supplement their GAAP results. Management believes non-GAAP financial measures are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP and may be different from similarly-titled non-GAAP financial measures used by other companies.

Pivotal excludes stock-based compensation because it is non-cash in nature and excludes it in order to facilitate comparisons to other companies’ results. Pivotal excludes amortization of intangible assets because it is consistent with how management evaluates operating results and prepares financial plans and forecasts. While the purchase accounting for an acquisition reflects the accounting value assigned to intangible assets, management believes the GAAP impact of acquired intangible assets is not representative of long term operating results. Pivotal excludes gains/losses on sales of strategic investments because management believes these are more reflective of discrete events and less reflective of results in a particular period.

Source: Pivotal Investor Relations

©2018 Pivotal Software, Inc. All rights reserved. Pivotal is a trademark and/or registered trademark of Pivotal Software, Inc. in the United States and/or other countries.

Contacts

Pivotal Software
Investor Contact:
Helyn Corcos
hcorcos@pivotal.io
or
Media Contact:
press@pivotal.io

Release Summary

Pivotal's 3Q19 earnings release

Contacts

Pivotal Software
Investor Contact:
Helyn Corcos
hcorcos@pivotal.io
or
Media Contact:
press@pivotal.io