My initial thoughts on the PVTL CC

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.


Ethan, note that despite all that verbiage they never gave the deferred number. And as I overly verbose in my prior post and on NPI they were not in the least concerned with what can only be called a sales failure. No enterprise software system in the world would take this result of 15 logos and be happy about it!

I am reading the Churchill, biography and the depth of utter leadership incompetence was so great in Britain that it defies imagination! I am not gonna put Amee in that category but it may be he is a fine software production architect and manager and a lousy sales manager. In fact that seems highly likely. We do not always get great folk that fit the job in leadership. Dell will of course have some patience here, but I doubt too much if logo numbers do not start to increase! I mean we are in a bull economy in the midst of worldwide digital transformation and in that environment 15 is a number to be pleased with!

Enough, I’m out. When, we shall see. I have no interest in investing in a company that is pleased with what they did this Q. I note that the after hour share price did not start to really collapse unti, around 530, 545 as the call really got going and n at its end. This call took the share price down at least 10% more than it otherwise would have fallen without the call. No doubt about it.

G night all.

I’ve never been this upset about an earnings call. Perhaps a sherry. Ahhh, can’t hurt.




I’m with you, not sure what to think now. As my first post said, I thought the quarter looked mostly good. A company with 48% growth in gross profit, total revenue accelerating to 30% growth from 28% last quarter, cf improving, margins improving. The 51% subscription growth was lower than I wanted but they had an 82% growth the year before.

My big concern was only 15 new customers.

Then I read the conference call and am totally unimpressed, they think 15 new customers is “going well”. And just the vibe I get from the call, almost evasive, not wanting to give any information.

I then went to Pivotal investor relations. Found the presentation. There is a slide on their land and expand model. It shows the cohort spending by year. The first 180 customers thru the end of 2016 have done all the spending. The 2017 cohort, 95 companies I think started spending more the first year, but after that it doesn’t look like they increased their spending at all. 2018 cohort is a sliver.(They are in the 2019 fiscal year). To me it looks like 80% of sales is from customers 2016 and before. I have to guess because there are no numbers on the y axis.

So I’m wondering if they have hit the top of the s curve for customers already, and the net expansion rate, and subscription sales are about to slow.



I read the earnings call and overall it was disappointing, but the after-hours drop seems overdone. I have some notes from the call and will probably post tomorrow but for now, I updated Saul’s tables he posted after Q1 that reflect the updates based on Q2.

Total Revenue (in millions of dollars)

	Apr		Jul		Oct		Jan		Total
2017:	 88		105		110		113		416
2018:	121		126		129		133		509
2019:	156		164						650 guidance

Subscription Revenue (in millions of dollars)

	Apr		Jul		Oct		Jan		Total
2017:	 29		 36		 38		 47		150
2018:	 53		 65		 66		 75		259
2019:	 90		 98						388 guidance

Service Revenue (in millions of dollars)

	Apr		Jul		Oct		Jan		Total
2017:	 59		 70		 72		 65		266
2018:	 68		 61		 63		 58		250
2019:	 66		 67						262 guidance

Percent Increase in Subscription  Revenue 

	Apr		Jul		Oct		Jan		Total
2018:	 83		 81		 74		 60		 73%
2019:	 70		 51

ethan1234: 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

I had the same impression of the conference call and it has me concerned. The numbers seem only slightly disappointing and I can see arguments for giving them the benefit of the doubt. The problem is in the mindset the conference call implies.

I see lots of justification for why the quarter is a success, very little celebration of the successes achieved and no mention of how to solve challenges they are facing.

For example, in the Q&A portion, they were given quotations about sales. Rather than talk about how sales will be improved (such as with some of our other companies), they gave oblique answers around how sales are actually headed in the right direction if you examine the numbers closely enough.

If I am accurate in my observation of their mindset this is setting up the company for failure.

I want to dig deeper but I may be selling this one soon…


One other thing that puzzles me,

Their rentention rate which we know is an industry best 150%.

Why is it that the retention rate is high, yet revenue only grew 30%? and subscription revenue only grew 50%? Shouldnt they both be higher?

RPO was $800 million last quarter, and dropped to $792 (or thereabouts). If the majority of the new deals from the 15 new accounts is deferred, shouldnt we have seen RPO go up, and not down??

Before today PVTL was a 9.4% position for me. I dont have the confidence in them as I do for AYX, TWLO, NTNX, MDB, ZS. So I need to decide either to trim down to 4-6% or sell out completely.



Ok, so this is my thoughts after sleeping on it. I sold half of my pvtl to bring it in line with what I think about the company. Previously it was about 6%, now it is one of my smaller positions at 3%.

Forward EV/S is around 8 for a company that looks like it will grow its revenue in the 30% range for a while. THe subscription revenue should grow in the 50% range assuming little growth in the customers due to the revenue retention rate. I think an ev/s of 8 is about right for a company that is definitely going to have improving margins and over time the subscription revenue is going to increase. Generates good cash flow. I think the company is probably fairly valued based on what we know now.

The nature of SaaS companies is for a company to sign up for an initial spend and then if they like the service increase their spend over time. In the conference call management made a couple of hints that they had lots of logos in line, vmware also said that customer acquisition was going well per a post duma made. PVTL only recognizes a customer as a customer when they have 50k in revenue, not booking. We could be seeing customers from last year, i’m guessing 6 months of time isn’t enough for us to see the full force of their change in strategy to adding customers. If any of the above is true then management and the analysts really drop the ball in messaging/questions.

Long story short I’ve kept a small position for now to see what is going on. I may change my mind


I did something similar to ethan and decided to sell half of my PVTL. Good news is that I am still in the green on PVTL even after today’s drop, but I think I like having it be a smaller position than it was. I reallocated the proceeds to put some more into NTNX, ZS, and to a lesser extent, MDB (which is already a very large position for me) and SQ (which had been a tiny position and now is more of a “small” position for me).

I had a similar reaction to the conference call. The management team just didn’t come across as very buttoned up. They seemed surprised that the market was expecting more. They sounded like they thought they beat their guidance and raised the forward guidance, so might not have expected the negative reaction that the earnings release got. Unfortunately, they kept referring to Q1’s revenue growth as an outlier yesterday, but I don’t think they referred to it that way three months ago. Had they, expectations would have been more reasonable.

I wasn’t too crazy about many of the CFO’s comments on the call. When they asked about whether the prior year’s RPO wasn’t available because it hadn’t been calculated at the time or if they just weren’t sharing it, and she replied that they were “audited” so they had it. That told me immediately that she doesn’t have a great understanding of what the auditors do, because they wouldn’t have signed off on PVTL’s RPO number for last year, and may not have even reviewed it since it wasn’t in any of their filings. It’s just not in the normal scope of something the auditors would recalculate unless they had to. I generally prefer companies with CFO’s that are from an accounting background (Big Four firm, etc) as opposed to investment banking.

After hearing that, I checked her background:

and yes, she spent the majority of her career with Morgan Stanley as a banker. That fits with why she her response about the auditors to the RPO question didn’t make sense, but it doesn’t fit with why she wasn’t prepared for the analysts to be expecting much more than what Pivotal had previously guided toward. Certainly, if she was an investment banker for seventeen years, she would have known that such a dropoff from the prior quarter would have been somewhat shocking and unexpected to the investors, despite their previous guidance.

Also, she really stumbled when one of the analysts simply asked generically what KPI’s managmement focuses on in evaluating their business. Being in the finance world, that is one of the most common questions I hear asked all of the time and every financial executive should have a simple canned response to the question. Given her almost two decades in Ibanking and the time she has spend in her role at Pivotal already, it’s hard to believe she wasn’t ready for that one. Maybe, just maybe, she felt that they had already covered all of the KPI’s (RPO etc) in answering the previous questions, but if that’s the case, she should have just reiterated that those were the ones that management pays the most attention to, rather than stumbling through a bad, unprepared-sounding response.

The reason I haven’t fully sold out of PVTL is because I do think they are going to have a pretty good Q3. Based on the numbers I put in my post yesterday in the other thread, assuming they again beat the top end of their guidance this next quarter by a similar 4.8% that they beat Q2, their growth rate should accelerate again, and that may surprise some people after all of the pessimism that is getting built in this week:

Subscription revenue:

Q1 $90.1m +69% (actual)
Q2 $97.5m +51% (actual)
Q3 $103.2m +56% (estimate assuming they beat top end of new guidance by 4.8%

However, where I’m particularly nervous is going to be their comps in fiscal 2020 (six months from now).

Let’s say they beat Q3 and Q4 2019’s guidance (this current year) by 4.8%, that sets up the year as:

Q1 $90.1m +69% (actual)
Q2 $97.5m +51% (actual)
Q3 $103.2m +56% (estimate assuming they beat top end of new guidance by 4.8%
Q4 $109.4m +46% (estimate assuming they beat top end of new guidance by 4.8%

why that makes me nervous is because that show a pretty consistent $6m-7m sequential growth each quarter. Now, let’s say that sequential growth continues in Q1 2020 and they get to $117m. That’s only going to be a 29% increase in subscription revenues for the first quarter of 2020 next year. Also they claimed on the call that Q4 is a seasonally strong quarter, so does that mean that I’m being optimistic to put that +$7m onto Q4 2019 in order to estimate Q1 2020? This is not giving me the warm and fuzzies.

I’ll probably hold the shares I still have remaining until after they announce Q3 in December since I do think that may turn out to be better than what the investment community with be expecting, but, unless there is some particularly good news at that time (higher than expected forward guidance or increase in new customers) I may have to reconsider whether I want to continue holding beyond December.

Of course, they could have a few great quarters in a row and really take off, but right now I’m just not seeing enough to make me have a high confidence in that, but I am willing to hold my remaining 50% of my shares for another three months unless I feel we get a really fantastic price on another company that I am more confident in and decide my funds could be much better allocated.

Bert put out a new premium article to his subscribers this morning, but PVTL wasn’t mentioned yet. I’m curious what he has to say. Hopefully will hear from him later today or tomorrow. I believe he was pessimistic about PVTL until last quarter’s beat, when he started to come around. I won’t be surprised if he turns negative on them again now but we’ll see.



Shouldnt they both be higher?

Look at customer count growth.

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