PVTL Pivotal Software Inc

• Subscription revenue grew 43% year over year
• Total revenue grew 19% year over year
• Subscription customers increased 13% year over year to 383
• Dollar-based net expansion rate of 143%

Pivotal Software, Inc. (NYSE: PVTL), a leading cloud-native platform provider, today reported results for the first quarter fiscal year 2020 ended May 3, 2019.

“We had a solid start to the year with 43% subscription growth and customer expansions continued to fuel our strong net expansion rate of 143%. However, sales execution and a complex technology landscape impacted the quarter,” said Rob Mee, CEO of Pivotal Software. “We have taken steps to improve our execution, and remain confident in our strategy and market opportunity for the long term. Pivotal continues to be the best partner for organizations that want to modernize their most important applications.”

First Quarter Fiscal 2020 Financial Results

Revenue: Subscription revenue was $128.9 million, an increase of 43% year over year. Total revenue was $185.7 million, an increase of 19% year over year.

Operating Loss: GAAP operating loss was $34.9 million, or 19% of total revenue, compared to a loss of $33.5 million in Q1 of last year. Non-GAAP operating loss was $11.8 million, or 6% of total revenue, compared to a loss of $21.0 million in Q1 of last year.

Net Loss: GAAP net loss was $31.7 million, compared to a loss of $32.5 million in Q1 of last year. GAAP net loss per share was $0.12, compared to a loss of $0.31 in Q1 of last year. Non-GAAP net loss was $8.6 million, compared to a loss of $23.3 million in Q1 of last year. Non-GAAP net loss per share was $0.03, compared to a loss of $0.10 in Q1 of last year.

Cash Flow: Operating cash flow was $122.2 million compared to operating cash flow of $4.5 million in Q1 of last year.

Cash and cash equivalents were $854.2 million as of May 3, 2019.

Recent Business Highlights

• Subscription customers grew 13% year over year to 383
• Dollar-based net expansion rate was 143%
• New features released to Pivotal Cloud Foundry through the continuous delivery of high-quality software and simplified operations to help organizations achieve meaningful business outcomes include:
  • Pivotal Application Service 2.5 harnesses the power of Istio, Envoy, Kubernetes, and Spring Cloud to make developers more productive
  • Greenplum for Kubernetes, also available for Pivotal Container Service, helps automate self-service deployment, management, and upgrades for a multitude of Greenplum nodes, so data professionals and application developers can focus on higher-level business needs
  • Spring Runtime 2.5 delivers support for OpenJDK via Pivotal Spring Runtime, our comprehensive support for all Java environments
• Awarded Wipro’s Digital Transformation Partner of the year

Financial Outlook

For the second quarter of fiscal 2020, Pivotal currently expects:

• Subscription revenue of $131 to $133 million
• Total revenue of $185 to $189 million
• Non-GAAP loss from operations of $11 to $9 million
• Non-GAAP net loss per share of 4¢ to 3¢, assuming weighted average shares outstanding of approximately 274 million

For the full fiscal year 2020, Pivotal currently expects:

• Subscription revenue of $530 to $538 million
• Total revenue of $756 to $767 million
• Non-GAAP loss from operations of $49 to $44 million
• Non-GAAP net loss per share of 15¢ to 13¢, assuming weighted average shares outstanding of approximately 275 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 PT (5:00pm ET) 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 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 product strategy, long-term market opportunity and 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 Kubernetes and 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). Additional information will be made available in Pivotal’s annual report on Form 10-K 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 May 3,   May 4, 2019   2018 Revenue: Subscription $ 128,856 $ 90,121 Services   56,859       65,614   Total revenue 185,715 155,735 Cost of revenue: Subscription 8,556 8,129 Services   52,046       51,162   Total cost of revenue 60,602 59,291 Gross profit 125,113 96,444 Operating expenses: Sales and marketing 81,621 69,138 Research and development 56,255 44,428 General and administrative   22,145       16,408   Total operating expenses   160,021       129,974   Loss from operations (34,908 ) (33,530 ) Other income, net   3,600       309   Loss before provision for (benefit from) income taxes (31,308 ) (33,221 ) Provision for (benefit from) income taxes   475       (664 ) Net loss   (31,783 )     (32,557 ) Less: Net loss attributable to non-controlling interest   46       42   Net loss attributable to Pivotal $ (31,737 )   $ (32,515 ) Net loss per share attributable to common stockholders, basic and diluted $ (0.12 )   $ (0.31 ) Weighted average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted   268,514       105,569       Pivotal Software, Inc. Condensed Consolidated Balance Sheets (in thousands); (unaudited)     May 3,   February 1, 2019   2019 Assets Current assets: Cash and cash equivalents $ 854,215 $ 701,733 Accounts receivable, net of allowance of $5,953 and $4,266 as of May 3, 2019 and February 1, 2019, respectively 117,887 308,492 Due from Parent 29,416 951 Deferred sales commissions, current 36,090 39,572 Other assets, current   18,272       16,738   Total current assets 1,055,880 1,067,486 Property, plant and equipment, net 27,121 27,879 Operating lease right-of-use assets 133,017 — Intangible assets, net 17,495 18,680 Goodwill 696,226 696,226 Deferred income taxes 340 258 Deferred sales commissions, noncurrent 32,551 35,522 Other assets, noncurrent   3,318       4,417   Total assets $ 1,965,948     $ 1,850,468   Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 16,382 $ 18,421 Due to Parent 13,683 20,241 Accrued expenses 46,859 64,723 Income taxes payable 1,184 1,232 Deferred revenue, current 350,970 376,985 Operating lease liabilities, current 20,381 — Other liabilities, current   10,956       4,373   Total current liabilities 460,415 485,975 Deferred revenue, noncurrent 66,101 89,603 Operating lease liabilities, noncurrent 125,314 — Other liabilities, noncurrent   2,131       9,412   Total liabilities   653,961       584,990   Stockholders’ equity: Class A common stock 963 901 Class B common stock 1,755 1,755 Additional paid-in capital 2,619,343 2,540,921 Accumulated deficit (1,316,240 ) (1,284,503 ) Accumulated other comprehensive income   5,495       5,687   Total Pivotal stockholders’ equity 1,311,316 1,264,761 Non-controlling interest   671       717   Total stockholders’ equity   1,311,987       1,265,478   Total liabilities and stockholders’ equity $ 1,965,948     $ 1,850,468       Pivotal Software, Inc. Condensed Consolidated Statements of Cash Flows (in thousands); (unaudited)     Three Months Ended May 3,   May 4, 2019   2018 Cash flows from operating activities: Net loss $ (31,783 ) $ (32,557 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization of intangible assets 4,098 4,755 Amortization of lease right-of-use assets and other expense 7,613 — Stock-based compensation expense 21,970 10,761 Provision for doubtful accounts 60 231 Deferred income taxes (91 ) (469 ) Gain on sale of investment (746 ) (3,234 ) Other 513 12 Changes in assets and liabilities: Accounts receivable 190,569 29,886 Due from Parent (1,965 ) (229 ) Deferred sales commissions 6,453 1,197 Other assets 1,713 1,463 Accounts payable (2,202 ) (4,531 ) Due to Parent (6,466 ) (1,055 ) Deferred revenue (49,609 ) 20,664 Accrued expenses (16,801 ) (21,905 ) Operating lease liabilities (7,787 ) — Other liabilities   6,668       (538 ) Net cash provided by operating activities   122,207       4,451   Cash flows from investing activities: Additions to property, plant and equipment (2,204 ) (1,879 ) Proceeds from sale of investment   1,929       3,234   Net cash provided by (used in) investing activities   (275 )     1,355   Cash flows from financing activities: Proceeds from the initial public offering, net of issuance costs paid — 547,254 Proceeds from the issuance of common stock 30,580 6,610 Contribution from Dell — 31,977 Borrowings on credit facility — 15,000 Repayments on credit facility   —       (35,000 ) Net cash provided by financing activities 30,580 565,841 Effect of exchange rate changes on cash and cash equivalents   (30 )     807   Net increase in cash and cash equivalents 152,482 572,454 Cash and cash equivalents at beginning of period   701,733       73,012   Cash and cash equivalents at end of period $ 854,215     $ 645,466       Pivotal Software, Inc. GAAP to Non-GAAP Reconciliation (in thousands, except percentages and per share amounts); (unaudited)     Three Months Ended May 3, 2019

 

  Stock-based   Amortization of  

 

 

 

compensation

acquired

Gain on sale of

GAAP

  expense  

intangibles

 

investment

 

Non-GAAP

Cost of subscription revenue $ 8,556 $ (506 ) $ (69 ) $ - $ 7,981 Subscription gross margin 93.4 % 0.4 % 0.1 % - % 93.8 % Cost of services revenue 52,046 (4,678 ) - - 47,368 Services gross margin 8.5 % 8.2 % - % - % 16.7 % Gross profit 125,113 5,184 69 - 130,366 Gross margin 67.4 % 2.8 % 0.0 % - % 70.2 % Sales and marketing 81,621 (6,811 ) (760 ) - 74,050 Research and development 56,255 (6,474 ) - - 49,781 General and administrative 22,145 (3,501 ) (356 ) - 18,288 Total operating expenses 160,021 (16,786 ) (1,116 ) - 142,119 Loss from operations (34,908 ) 21,970 1,185 - (11,753 ) Operating margin (18.8 %) 11.8 % 0.6 % - % (6.3 %) Other income, net 3,600 - - - 3,600 Net loss attributable to Pivotal $ (31,737 ) $ 21,970 $ 1,185 $ - $ (8,582 ) Net loss per share, basic and diluted (1) $ (0.12 ) $ (0.03 )   (1) GAAP and Non-GAAP net loss per common share calculated based upon 268,514 basic and diluted weighted average shares outstanding of common stock.     Three Months Ended May 4, 2018

 

Stock-based Amortization of

 

 

compensation

acquired

Gain on sale of

GAAP

  expense  

intangibles

 

investment

 

Non-GAAP

Cost of subscription revenue $ 8,129 $ (227 ) $ (432 ) $ - $ 7,470 Subscription gross margin 91.0 % 0.3 % 0.5 % - % 91.7 % Cost of services revenue 51,162 (2,289 ) - - 48,873 Services gross margin 22.0 % 3.5 % - % - % 25.5 % Gross profit 96,444 2,516 432 - 99,392 Gross margin 61.9 % 1.6 % 0.3 % - % 63.8 % Sales and marketing 69,138 (3,571 ) (906 ) - 64,661 Research and development 44,428 (2,864 ) - - 41,564 General and administrative 16,408 (1,810 ) (383 ) - 14,215 Total operating expenses 129,974 (8,245 ) (1,289 ) - 120,440 Loss from operations (33,530 ) 10,761 1,721 - (21,048 ) Operating margin (21.5 %) 6.9 % 1.1 % - % (13.5 %) Other income (expense), net 309 - - (3,234 ) (2,925 ) Net loss attributable to Pivotal $ (32,515 ) $ 10,761 $ 1,721 $ (3,234 ) $ (23,267 ) Net loss per share, basic and diluted (1) $ (0.31 ) $ (0.10 )   (1) GAAP net loss per common share calculated based upon 105,569 basic and diluted weighted average shares outstanding of common stock. Non-GAAP net loss per common share calculated based upon 224,197 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 May 3, May 4, 2019   2018 GAAP weighted average shares outstanding, basic and diluted 268,514 105,569 Assumed preferred stock conversion –   118,628 Non-GAAP weighted average shares outstanding, basic and diluted 268,514 224,197  

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 acquired intangibles 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 acquired intangibles 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

©2019 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.

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Pivotal SoftwareInvestor Contact:Helyn Corcoshcorcos@pivotal.ioorMedia Contact:Joseph Roualdesjroualdes@pivotal.io