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Pivotal Reports Second Quarter Fiscal Year 2019 Financial Results

September 12, 2018 4:11 PM

SAN FRANCISCO--(BUSINESS WIRE)-- Pivotal Software, Inc. (NYSE: PVTL), a leading cloud-native platform provider, today reported results for the fiscal 2019 second quarter ended August 3, 2018.

“Pivotal delivered another strong performance in the second quarter. We remain focused on customer success and winning new customers with our differentiated, multi-cloud platform. Subscription revenue growth of 51% and 30% total revenue growth were driven by customer expansions and new customer wins,” said Rob Mee, CEO of Pivotal Software. “Organizations that work with Pivotal learn to build iteratively, deliver continuously and operate securely and reliably at scale. We’ve shown that Pivotal’s cloud-native platform, developer tools, and unique methodology provide the elements necessary to modernize an enterprise.”

Second Quarter Fiscal Year 2019 Financial Results

Revenue: Subscription revenue was $97.5 million, an increase of 51% year over year. Total revenue was $164.4 million, an increase of 30% year over year.

Operating Loss: GAAP operating loss was $35.4 million, or 22% of total revenue, compared to a loss of $38.2 million in Q2 of last year. Non-GAAP operating loss was $14.6 million, or 9% of total revenue, compared to a loss of $29.9 million year over year.

Net Loss: GAAP net loss was $35.6 million, compared to a loss of $35.4 million year over year. GAAP net loss per share was $0.14, compared to a loss of $0.52 in Q2 of last year. Non-GAAP net loss was $14.8 million, compared to a loss of $27.1 million year over year. Non-GAAP net loss per share was $0.06, compared to a loss of $0.13 in Q2 of last year.

Cash Flow: Operating cash flow for the quarter was $18.4 million compared to negative operating cash flow of $56.5 million in Q2 of last year.

Cash and cash equivalents were $671.7 million as of August 3, 2018.

Recent Business Highlights

Financial Outlook

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

For the full fiscal year 2019, Pivotal currently expects:

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, regarding Pivotal’s collaboration with HCL, and regarding Knative, Riff and Pivotal Function Service), 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

�

Six Months Ended
August 3, August 4, August 3, August 4,
� 2018 � � � 2017 � � 2018 � � � 2017 �
Revenue:
Subscription $ 97,494 $ 64,566 $ 187,615 $ 117,989
Services � 66,914 � � � 61,444 � � 132,528 � � � 129,231 �
Total revenue 164,408 126,010 320,143 247,220
Cost of revenue:
Subscription 8,105 7,618 16,234 15,116
Services � 53,129 � � � 48,726 � � 104,291 � � � 100,261 �
Total cost of revenue 61,234 56,344 120,525 115,377
Gross profit 103,174 69,666 199,618 131,843
Operating expenses:
Sales and marketing 70,550 52,875 139,688 105,032
Research and development 47,001 39,661 91,429 79,679
General and administrative � 21,025 � � � 15,364 � � 37,433 � � � 33,777 �
Total operating expenses � 138,576 � � � 107,900 � � 268,550 � � � 218,488 �
Loss from operations (35,402 ) (38,234 ) (68,932 ) (86,645 )
Other income, net � 237 � � � 1,910 � � 546 � � � 2,631 �
Loss before provision for (benefit from) income taxes (35,165 ) (36,324 ) (68,386 ) (84,014 )
Provision for (benefit from) income taxes � 437 � � � (822 ) � (227 ) � � 2,832 �
Net loss � (35,602 ) � � (35,502 ) � (68,159 ) � � (86,846 )
Less: Net loss (income) attributable to non-controlling interest � (5 ) � � 118 � � 37 � � � (84 )
Net loss attributable to Pivotal $ (35,607 ) � $ (35,384 ) $ (68,122 ) � $ (86,930 )

Net loss per share attributable to common stockholders,
basic and diluted

$ (0.14 ) � $ (0.52 ) $ (0.38 ) � $ (1.28 )

Weighted average shares outstanding used in computing net loss
per share attributable to common stockholders, basic and diluted

� 257,240 � � � 68,330 � � 181,404 � � � 68,142 �
�
Pivotal Software, Inc.
Condensed Consolidated Balance Sheets
(in thousands); (unaudited)
� �
August 3, February 2,
� 2018 � � � 2018 �
Assets
Current assets:
Cash and cash equivalents $ 671,708 $ 73,012

Accounts receivable, less allowance for doubtful accounts
of $3,431 and $3,264 as of August 3, 2018 and February 2, 2018,
respectively

132,443 210,677
Due from Parent 1,531 31,096
Deferred sales commissions, current 35,594 38,937
Other assets, current � 15,698 � � � 13,012 �
Total current assets 856,974 366,734
Property, plant and equipment, net 28,772 31,985
Intangible assets, net 21,752 26,651
Goodwill 696,226 696,226
Deferred income taxes 561 463
Deferred sales commissions, noncurrent 23,960 24,890
Other assets, noncurrent � 4,834 � � � 6,448 �

Total assets

$ 1,633,079 � � $ 1,153,397 �

Liabilities, Redeemable Convertible Preferred Stock
and Stockholders’ Equity (Deficit)

Current liabilities:
Accounts payable $ 16,477 $ 17,214
Due to Parent 11,576 15,451
Accrued expenses 46,935 64,251
Income taxes payable 1,312 1,748
Deferred revenue, current 244,727 260,341
Other liabilities, current � 6,704 � � � 1,109 �
Total current liabilities 327,731 360,114
Deferred revenue, noncurrent 61,882 57,126
Deferred income taxes 131 427
Debt, noncurrent - 20,000
Other liabilities, noncurrent � 8,520 � � � 7,931 �
Total liabilities � 398,264 � � � 445,598 �
Redeemable convertible preferred stock - 1,248,327
Stockholders’ equity (deficit):
Class A common stock 819 43
Class B common stock 1,755 650
Additional paid-in capital 2,436,568 595,113
Accumulated deficit (1,210,722 ) (1,142,600 )
Accumulated other comprehensive income � 5,720 � � � 5,554 �
Total Pivotal stockholders’ equity (deficit) 1,234,140 (541,240 )
Non-controlling interest � 675 � � � 712 �
Total stockholders’ equity (deficit) � 1,234,815 � � � (540,528 )

Total liabilities, redeemable convertible preferred stock
and stockholders’ equity (deficit)

$ 1,633,079 � � $ 1,153,397 �
�
Pivotal Software, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands); (unaudited)
� � � �
Three Months Ended Six Months Ended
August 3, August 4, August 3, August 4,
� 2018 � � � 2017 � � 2018 � � � 2017 �
Cash flows from operating activities:
Net loss $ (35,602 ) $ (35,502 ) $ (68,159 ) $ (86,846 )

Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:

Depreciation and amortization 4,599 5,750 9,354 11,073
Stock-based compensation expense 19,044 5,402 29,805 11,409
Provision for doubtful accounts 388 - 619 -
Deferred income taxes 64 (122 ) (405 ) 209
Gain on sale of investment - - (3,234 ) -
Other 1,449 1,230 1,461 855
Changes in assets and liabilities:
Accounts receivable 46,454 (28,362 ) 76,340 13,764
Due from Parent (7 ) - (236 ) -
Deferred sales commissions 3,075 452 4,272 3,024
Other assets (3,920 ) (3,237 ) (2,457 ) (3,746 )
Accounts payable 3,984 3,056 (547 ) 4,640
Due to Parent (2,130 ) (16,962 ) (3,185 ) (23,128 )
Deferred revenue (31,218 ) 5,238 (10,554 ) (7,774 )
Accrued expenses 5,692 7,827 (16,213 ) 13,468
Other liabilities � 6,497 � � � (1,287 ) � 5,959 � � � 2,086 �
Net cash provided by (used in) operating activities � 18,369 � � � (56,517 ) � 22,820 � � � (60,966 )
Cash flows from investing activities:
Additions to property, plant and equipment (2,173 ) (3,036 ) (4,052 ) (8,458 )
Proceeds from sale of investment � - � � � - � � 3,234 � � � - �
Net cash used in investing activities � (2,173 ) � � (3,036 ) � (818 ) � � (8,458 )
Cash flows from financing activities:
Proceeds from the initial public offering, net of issuance costs paid (2,580 ) - 544,674 -
Proceeds from the issuance of common stock 2,814 2,145 9,424 3,935
Contribution from DellEMC 9,300 25,800 41,277 25,800
Borrowings on credit facility - - 15,000 -
Repayments on credit facility � - � � � - � � (35,000 ) � � - �
Net cash provided by financing activities 9,534 27,945 575,375 29,735
Effect of exchange rate changes on cash and cash equivalents � 512 � � � (1,484 ) � 1,319 � � � (1,798 )
Net increase (decrease) in cash and cash equivalents 26,242 (33,092 ) 598,696 (41,487 )
Cash and cash equivalents at beginning of period � 645,466 � � � 125,478 � � 73,012 � � � 133,873 �
Cash and cash equivalents at end of period $ 671,708 � � $ 92,386 � $ 671,708 � � $ 92,386 �
�
Pivotal Software, Inc.
GAAP to Non-GAAP Reconciliation
(in thousands, except percentages and per share amounts); (unaudited)
� � � � �
Three Months Ended August 3, 2018
GAAP �

Stock-based
compensation
expense

�

Amortization of
acquired
intangibles

�

Gain on sale of
investment

� Non-GAAP
Cost of subscription revenue $ 8,105 $ (411 ) $ (433 ) $ - $ 7,261
Subscription gross margin 92 % 0 % 0 % - % 93 %
Cost of services revenue 53,129 (4,188 ) - - 48,941
Services gross margin 21 % 6 % - % - % 27 %
Gross profit 103,174 4,599 433 - 108,206
Gross margin 63 % 3 % 0 % - % 66 %
Sales and marketing 70,550 (5,688 ) (910 ) - 63,952
Research and development 47,001 (5,386 ) - - 41,615
General and administrative 21,025 (3,371 ) (384 ) - 17,270
Total operating expenses 138,576 (14,445 ) (1,294 ) - 122,837
Loss from operations (35,402 ) 19,044 1,727 - (14,631 )
Operating margin (22 %) 12 % 1 % - % (9 %)
Other income (expense), net 237 - - - 237
Net loss attributable to Pivotal $ (35,607 ) $ 19,044 $ 1,727 $ - $ (14,836 )

Net loss per share, basic and diluted (1)

$ (0.14 ) $ (0.06 )
(1) GAAP and Non-GAAP net loss per common share calculated based upon 257,240 basic and diluted weighted average shares outstanding of common stock.
�
� Three Months Ended August 4, 2017
GAAP �

Stock-based
compensation
expense

�

Amortization of
acquired
intangibles

�

Gain on sale of
investment

� Non-GAAP
Cost of subscription revenue $ 7,618 � $ (87 ) � $ (1,318 ) � $ - � $ 6,213
Subscription gross margin 88 % 0 % 2 % - % 90 %
Cost of services revenue 48,726 (1,186 ) - - 47,540
Services gross margin 21 % 2 % - % - % 23 %
Gross profit 69,666 1,273 1,318 - 72,257
Gross margin 55 % 1 % 1 % - % 57 %
Sales and marketing 52,875 (1,697 ) (1,232 ) - 49,946
Research and development 39,661 (1,372 ) - - 38,289
General and administrative 15,364 (1,060 ) (359 ) - 13,945
Total operating expenses 107,900 (4,129 ) (1,591 ) - 102,180
Loss from operations (38,234 ) 5,402 2,909 - (29,923 )
Operating margin (30 %) 4 % 2 % - % (24 %)
Other income (expense), net 1,910 - - - 1,910
Net loss attributable to Pivotal $ (35,384 ) $ 5,402 $ 2,909 $ - $ (27,073 )
Net loss per share, basic and diluted (1) $ (0.52 ) $ (0.13 )
(1) GAAP net loss per common share calculated based upon 68,330 basic and diluted weighted average shares outstanding of common stock. Non-GAAP net loss per common share calculated based upon 216,209 basic and diluted weighted average shares outstanding of common stock.
�
� Six Months Ended August 3, 2018
GAAP �

Stock-based
compensation
expense

�

Amortization of
acquired
intangibles

�

Gain on sale of
investment

� Non-GAAP
Cost of subscription revenue $ 16,234 � $ (638 ) � $ (865 ) � $ - � $ 14,731
Subscription gross margin 91 % 0 % 0 % - % 92 %
Cost of services revenue 104,291 (6,477 ) - - 97,814
Services gross margin 21 % 5 % - % - % 26 %
Gross profit 199,618 7,115 865 - 207,598
Gross margin 62 % 2 % 0 % - % 65 %
Sales and marketing 139,688 (9,259 ) (1,816 ) - 128,613
Research and development 91,429 (8,250 ) - - 83,179
General and administrative 37,433 (5,181 ) (767 ) - 31,485
Total operating expenses 268,550 (22,690 ) (2,583 ) - 243,277
Loss from operations (68,932 ) 29,805 3,448 - (35,679 )
Operating margin (22 %) 9 % 1 % - % (11 %)
Other income (expense), net 546 - - (3,234 ) (2,688 )
Net loss attributable to Pivotal $ (68,122 ) $ 29,805 $ 3,448 $ (3,234 ) $ (38,103 )
Net loss per share, basic and diluted (1) $ (0.38 ) $ (0.16 )
(1) GAAP net loss per common share calculated based upon 181,404 basic and diluted weighted average shares outstanding of common stock. Non-GAAP net loss per common share calculated based upon 240,719 basic and diluted weighted average shares outstanding of common stock.
�
� Six Months Ended August 4, 2017

GAAP

�

Stock-based
compensation
expense

�

Amortization of
acquired
intangibles

�

Gain on sale of
investment

� Non-GAAP
Cost of subscription revenue $ 15,116 � $ (180 ) � $ (2,618 ) � $ - � $ 12,318
Subscription gross margin 87 % 0 % 2 % - % 90 %
Cost of services revenue 100,261 (2,505 ) - - 97,756
Services gross margin 22 % 2 % - % - % 24 %
Gross profit 131,843 2,685 2,618 - 137,146
Gross margin 53 % 1 % 1 % - % 55 %
Sales and marketing 105,032 (3,352 ) (2,469 ) - 99,211
Research and development 79,679 (3,084 ) - - 76,595
General and administrative 33,777 (2,288 ) (710 ) - 30,779
Total operating expenses 218,488 (8,724 ) (3,179 ) - 206,585
Loss from operations (86,645 ) 11,409 5,797 - (69,439 )
Operating margin (35 %) 5 % 2 % - % (28 %)
Other income (expense), net 2,631 - - - 2,631
Net loss attributable to Pivotal $ (86,930 ) $ 11,409 $ 5,797 $ - $ (69,724 )
Net loss per share, basic and diluted (1) $ (1.28 ) $ (0.32 )
(1) GAAP net loss per common share calculated based upon 68,142 basic and diluted weighted average shares outstanding of common stock. Non-GAAP net loss per common share calculated based upon 216,021 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 Six Months Ended
August 3, August 4, August 3, August 4,
2018 � 2017 2018 � 2017
GAAP weighted average shares outstanding, basic and diluted 257,240 68,330 181,404 68,142
Assumed preferred stock conversion - � 147,879 59,315 � 147,879
Non-GAAP weighted average shares outstanding, basic and diluted 257,240 216,209 240,719 216,021
�

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: 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.

Pivotal Software

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or

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Source: Pivotal Software, Inc.

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