The general tone of this CC was not positive by any means. There were no congratulations on a strong quarter. Much of it was explaining “new” metrics (which makes me nervous), explaining how they were actually happy with their customer acquisitions, and trying to answer analysts questions about seasonality and sales cycles (which is code for, why did this quarter go so poorly) In my very first post about PVTL I questioned a lot of the things that we were seeing and much of that has come true. Their sales costs have increased, their revenue growth has decreased just as I had initially worried. Having said that I can’t decide if I’m ready to throw in the towel on PVTL. As they say, the way they count customers is very very conservative and they think they have a bunch of wins in the pipeline. I guess my question is what do they consider a bunch of wins? 10, 20, 30, 100? I know I don’t think 15 counts. For a brief moment in the day the stock was up 5% and I was going to sell half of my position because what I read was pretty disappointing but I was too busy. The next time I looked it was down a very solid 24%. Now I’m trying to decide if what I read was disappointing to the tune of 24% drop. I’m going to sleep on it, run some numbers, and try and wrap my head around what this new metric, RPO is.
on customer growth
You have to remember though on the customer count we use a very conservative definition, its revenue in quarter, and so it’s not a bookings or booking type of metric, it’s revenue metric.
We’re starting to see a lot of customers coming in wanting to buy PKS, wanting an enterprise Kubernetes solution and we’re seeing some momentum now coming from the VMware partnership and the pipeline there as well. So I think in term of new logos we’re going to see continued improvement.
on their “new” metric RPO
you mentioned RPO number, but obviously you don’t want to give us last year’s RPO. Is that – can you talk to that? Is that just the difficulty of going back and reordering all the contracts and stuff like that? Is that kind of provides me to think about it that’s why we don’t get that number?
No. I mean, the numbers are fully audited, so its not an audit issue, its more we haven’t historically disclose that number and its not in our S1 on historical basis. And so it just something we’re not disclosing at this time, the past quarters. But as I said going into next year you’ll have a comparative point there and again the underlying idea behind RPO, it shows you visibility into our future revenue streams and as a multiple of our current revenue is quite large
we expect our RPO will be variable quarter-to-quarter and it will peak in Q4 just given the dynamic and the seasonality around Q4 and then the relative – relative to subsequent quarters Q1 to Q3 of the following year we would expect RPO to be slightly up to slightly down and so when you look at Q2 it performed in line with this and so I know RPO is somewhat of a new metric under 606, but again we really do this it’s a comprehensive metric around and a forward indicator on our revenue.
an answer to a bunch of questions that were trying to get at why revenue growth kind of sucked
No we haven’t seen any changes in the sales cycle. I would say – we are just as a reminder and again we talked about this in Q1 as well. I mean we are an enterprise focus subscription business and we have sales cycle that are typical for large enterprise type of customers who are making strategic purchases.
this question really got to the heart of the problem
I wanted to talk about your deferred revenue seasonality in 2Q. And I hear what you are saying about RPO, but if we look back you have seasonally seen deferred revenue grow sequentially in the second quarter if I look back over the last two years. And I’m most focused on short term VRA. This quarter you didn’t, so you didn’t see normal seasonality, but you are telling us to expect the normal sequential decline in Q3 that you appear to be coming off a slightly weaker 2Q and again, I’m just wondering if you could just walk us through – your comments about normal seasonality in Q3 despite the fact that you are not seeing in 2Q and I guess the related question on top of that is as you focus more and more deals to services partners, how does this impact your DR [ph] performance also. I guess is the percentage of DR that’s driven by services coming down and maybe that’s one of the reasons why you had the seasonality change in the second quarter? Thank you.
The answer is below but i’m not sure I totally buy it. I think they are saying last quarter an anomaly …i.e don’t expect 69% revenue growth
So we do have seasonality in deferred and you know it’s kind of this trend on Q3, 2Q to Q3 of last year which we are expecting to see again this year. The other piece of it – sort of seasonality but there’s also lumpiness because you have to remember we had 354 subscription customers. Our net expansion rate is 150% which is market leading. And when you think about kind of an enterprise software business with – and when we talk about this on the Q1 call as well, but we have few customers, our average revenue per customer is at a higher level. This can accentuate the variability quarter-to-quarter relative to another type of subscription company that’s maybe you know high volume, lower value on a revenue per customer basis.
So there’s definitely lumpiness due to the contract start dates, due to the timing, and due to the multi-prepayment, multiyear prepayments. And then I think on top of that as we talk about on the Q1 call when you look at Q1 going into Q2, in Q1 on the P&L that also flow to the balance sheet we had some tailwinds related to favorable in quarter linearity. So I think what you’re seeing is partly related to the dynamic of Q1 to Q2, partly related to the typical seasonality with the Q2 to Q3, and then contract start dates, timing and multiyear prepayments just given where we are in terms of the strategic nature of our customers, what our expansion rates are and again timing, contract start dates and multiyear prepayments associated with that type of customer base.