Pivotal Reports First Quarter FY2019

Hi All,

https://seekingalpha.com/pr/17190296-pivotal-reports-first-q…

Some really nice trending numbers for Pivotal this quarter.

Highlights include:

69% (!) growth in subscription revenues

156% Dollar based retention rate

Amazing margins in the subscription service of 92%, which is up from 89% previous quarter
Service margins remained at a sub par 26% consistent with last quarter

But as subscription revenue continues to grow as a bigger piece of the pie, total gross margins continue to rise, now at 64% from 54% just 3 months ago.

Customer count now stands at 339.

Net loss and operating losses are half of where they were this time last year.

Cash Flow: Operating cash flow for the quarter was $4.5 million compared to a negative operating cash flow of $4.4 million in Q1 of last year.

Cash and cash equivalents were $645.5 million as of May 4, 2018.

To quote Saul back on 5/15/18:
My suspicion/hope is that the same thing will happen here as happened with Twilio, which rose 100% in a few months after everyone figured out what was really going on. After one, or maybe two, quarterly reports people will start to see the camouflaged growth here too.

But I’m no tech expert.

I think we are just starting to see this play out.

Hopefully the CC transcript is up tonight.

Best,
Matt

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The headline number is that subscription revenue is up 69% compared to Q1 last year. I think the more impressive feat is that the subscription revenue is up 20% from the last quarter going from $75M to $90M. Quarterly subscription revenue growth for the last 4 quarters is Q2 2018 – 22.6%, Q3 2018 – 2%, Q4 2018 – 14% and now Q1 2019 - 20%. Given their retention rate of 156%, I think their Q2 guidance of $92-93M for subscription revenue is pretty conservative as it is only 3% growth from this current quarter. Also, their full year guidance assumes average quarterly subscription revenue of $97.3M for the next 3 quarters. I think they are setting the bar low to be able to easily exceed earnings this year. Given the accelerating subscription growth, the dollar retention rate of 156%, the improving margins as subscription revenue becomes a higher percentage of overall revenue and the large TAM, I am very happy to hold this stock for a long time.

Thanks to SteppenWulf for all his time laying out the bull case for PVTL and MDB! Getting his insight from a user’s perspective was extremely valuable for me in taking positions in both stocks.

28 Likes

I listened to the conference call. Their first conference call after becoming public.

Other’s have already discussed the numbers… and I’m sure there will be more discussion on that… bottom line: they delivered the types of numbers we are looking for.

I wanted to listen to hear how they handled their first earnings report conference call.

It was professional, well organized, on time.

They were prepared… obviously reading from prepared scripts… but that’s the way it is supposed to be. They took it seriously and prepared and were ready. The scripts were complete… addressed the key questions and gave a good overview.

In the Q&A, both the CEO and CFO were comfortable and respectful with the analysts. They weren’t dodging questions or avoiding answers.

It was plain English. I work for NASA… doing very technical stuff. We have a saying that if you can’t explain it in plain English you don’t understand it well enough… or you are trying to pull something. Both the CEO and CFO gave plain English answers to questions. I liked that.

The CEO was comfortable in both the prepared statements portion and the Q&A. The CFO stumbled a bit more in the prepared statements but was more comfortable in the Q&A. I actually liked that. The CEO was comfortable and came across knowledgeable and confident. The CFO came across a bit like a CFO… more comfortable in the numbers than public speaking. It worked for me.

It was good data… but comfortable. They weren’t in over their heads. They weren’t “too proud” or cocky.

I thought it was a solid conference call.

Mark

37 Likes

Key Takeaways:

“RPO or Remaining Performance Obligation, represents the estimated value of our billed and unbilled subscriptions and services, and demonstrates the visibility associated with our revenue model. RPO was $800 million at the end of Q1 with approximately 50% expected to be realized in the next 12 months. We expect quarterly seasonality in RPO with variability from a peak in Q4, relative to the subsequent quarters.”

In the next twelve months there is already ~$400M of revenue committed (~50% of $800M)! It does say “subscriptions and services” so we can’t know exactly how much is in each bucket. However, I would assume most is Subscription related given the nature of the business. Subscription guidance is for only $384M this year. I smell a substantial beat coming given the already committed 12 month revenue(to be fair the next twelve months is Q2FY19-Q2FY20, but similar story) and the high expansion rate and customer growth.


http://blog.executivebiz.com/2018/06/pivotal-to-provide-soft…

Analyst mentioned this deal and how it affects guidance and management response was classic deflection:

“So, I think, we’re not going to get into the specifics of specific contract or specific customers and the terms and how that flows through the financials. But, we are, as Rob said, from a federal perspective, we do think that’s a big opportunity for the Company. You should also just be aware that the numbers that the government disclosed, the way that we recognize revenue is over time. And it also includes both subscription and services, but that’s probably the level of specificity we can get into at this point.”

My translation: We are low balling and this deal will put us easily above our guidance. The report indicated this is a 1YR deal so majority of it would recognize in FY19.


“I want to make clear that we’re not transitioning our labs offering to partners. We’re definitely going to continue on modest growth with Pivotal Labs because it is still strategic to us. But we also are really pleased to see other organizations adopting our methods and using those.”

Guidance would indicate modest GROWTH in the Services business this year. This will never be a major growth driver but in my models before this call I had it continuing its ~10% Y/Y declines for the foreseeable future. I expect some analysts had assumed the same. Guidance and discussion on the call seemed to indicate that the declines should be in the rearview mirror and while it won’t be a growth driver that flat to slightly up is likely a reasonable assumption.

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From wouter:
Given their retention rate of 156%, I think their Q2 guidance of $92-93M for subscription revenue is pretty conservative as it is only 3% growth from this current quarter. Also, their full year guidance assumes average quarterly subscription revenue of $97.3M for the next 3 quarters. I think they are setting the bar low to be able to easily exceed earnings this year. Given the accelerating subscription growth, the dollar retention rate of 156%, the improving margins as subscription revenue becomes a higher percentage of overall revenue and the large TAM, I am very happy to hold this stock for a long time.

I will note that wouter has provided some excellent analysis on UBNT in the past, particularly digging deeply into their accounting situation. Thus, I owe wouter a bit for some of my gains with UBNT.

This take from FlyFisher matches wouter’s take considerably:
My translation: We are low balling and this deal will put us easily above our guidance. The report indicated this is a 1YR deal so majority of it would recognize in FY19.

With the strong possibility that the “hidden growth” in the subscription revenue continues to take up more of the total revenue, I am thinking my options will be well-served to convert to shares in mid-to-late September. That will likely be preferable tax-wise, as well, to let that turn into a long-term gain.

-volfan84
long PVTL Sept 21 2018 $22.50 call options (up over 400% since the June 5, 2018 purchase, for a reference point)

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Unfortunately I was in meetings yesterday and completely missed the PVTL reporting in the 4pm ish timeframe. But I read the conference call with a lot of interest, and the professional Pivotal team did not disappoint.

“RPO or Remaining Performance Obligation, represents the estimated value of our billed and unbilled subscriptions and services, and demonstrates the visibility associated with our revenue model. RPO was $800 million at the end of Q1 with approximately 50% expected to be realized in the next 12 months. We expect quarterly seasonality in RPO with variability from a peak in Q4, relative to the subsequent quarters.”

In the next twelve months there is already ~$400M of revenue committed (~50% of $800M)!

@FlyFisher This also jumped out at me in the conference call. Looks like they are doing what we would expect - blowing away this quarter’s numbers and sandbagging next quarter’s. Telegraphing that so clearly in the call was a bit odd, wasn’t it?

I was a little concerned at the continuing rate of customer growth measured in dozens. Revenue growth and stickiness is great, but I would expect that the addressable market for customers should be most large companies and most mid-sized companies around the world. I would hope that in the next year or two we will be counting customers in the thousands not the hundreds. The partnerships with management consulting companies might help a bit here, but they also are very skewed toward the very large companies.

Enterprise sales is not a strong point for me, but I think Pivotal would need to invest a lot in their sales force to get to these addressable customers - of course there is Saul’s point that they may already be growing as fast as they can digest the new growth. I would have loved to hear the management team’s opinion on this. I wonder if their dependence on VMWare/EMC/Dell sales forces is affecting their sales funnel? These are primarily hardware or hardware-linked-software sales, and Pivotal, as a pure software company, has a different target audience and a wider addressable market.

The analysts didn’t really understand the relationship between PAS and PKS, but I think Pivotal described it well. They are looking at PKS as helping them to address new markets, including companies that are closer to first movers in cloud technology, so this may also help to increase customers in certain segments.

Thanks to SteppenWulf for all his time laying out the bull case for PVTL and MDB! Getting his insight from a user’s perspective was extremely valuable for me in taking positions in both stocks.

@wouter28 - I’m glad if my long opinionated posts helped and am quite relieved I didn’t steer this community the wrong way. But of course I was just one guy talking about Pivotal and Mongo - I personally got lots of insights and things to think about from Saul, Tinker, Conehead, and many others - thanks all!

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I was a little concerned at the continuing rate of customer growth measured in dozens.

It was 20, right? 319 last quarter, 339 now. The weirder thing, as Epictetus pointed out and I noted as well here (http://discussion.fool.com/sure-they-boast-quot7-of-the-largest-…), is that their fantastic 156% retention rate is probably driven by about 40 of these which are million-dollar plus per year customers. Maybe as much as $10 million each on average…that’s a lot of money from not that many customers. Is one of those customers 10% or 20% of all Pivotal’s revenue?

More importantly, is that 156% destined to drop precipitously? If these customers are increasing their spend that fast, how close are they to saturation (spending as much as they will ever need to with Pivotal)?

Still, amazing quarter, and the 28% revenue growth is completely non-indicative of their true performance, which was incredible. I took a 4% position AH yesterday when I saw the report. I’m still cautious and want to learn more, but great call on this one, SteppenWulf. Along with the others who have said the same, I am grateful you brought it to the board. And Saul, I’m so glad you dug in on it! Thank you both!

Bear

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I will note that wouter has provided some excellent analysis on UBNT in the past, particularly digging deeply into their accounting situation. Thus, I owe wouter a bit for some of my gains with UBNT.

Thanks Joel. I appreciate it. The UBNT situation was definitely in my wheelhouse given that the stock was being attacked on accounting issues when their accounting is really straightforward and they had a clean SOX audit after cleaning up their financial control issues. Also, I love how Pera keeps shrinking the float through buybacks. His capital allocation skills are very admirable and wish more companies used his approach.

That’s the benefit of this board. We have such a broad base of knowledge across all professions and industries that we have access to very informed opinions on many types of growth companies. Obviously with software companies, it’s nice to have the IT knowledge well represented here with several posters including SteppenWolf with his experience with some of our main holdings like PVTL, MDB and NTNX. I only subscribe to MF Rule Breakers and Stock Advisor, but would pay multiples of what I pay for these 2 services to have access to this board. I think this board is more valuable than any other paid service out there.

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