Overall, PVTL beat guidance and raised guidance, although the raise in guidance was not significant. Stock is down about 19% after hours. Total revenue came in at $164.4M, up 30% yoy. This compares to their guidance of $157 to $159 million and the analyst estimate of $158.2 million, so a solid beat. Subscription revenue was $97.5 million, an increase of 51% yoy. This compares to guidance of $92 to $93 million. I knew their Q2 guidance was conservative, but was hoping they would stay closer to their 69% subscriptions growth from Q1. This is disappointing.
· The Dollar-based net expansion rate was 150%, which is a little lower than the 156% from Q1. Very solid. They increased subscription customers (over $50K) from 339 to 354, adding 15 customers during the quarter and 35 during the first half. This compares to 44 new customers during all of prior year.
· Operating cash flow was positive $18.4M compared to negative $56.5M last year and positive $4.5M last quarter. This is a solid improvement.
Some operational highlights:
· Released significant updates to Pivotal Cloud Foundry in the quarter including:
-PAS 2.2 delivered support for deployment on Microsoft Azure Stack along with other enhancements to improve developer productivity and security of the platform
-PKS 1.1 included new high-availability deployment options and includes the most recent version of Kubernetes open-source
· Joined Google in launching a new open-source project for serverless functions called Knative. After making significant contributions to Knative, we will use this along with our own project Riff to create Pivotal Functions Service
· HCL, a global systems integrator, extended its collaboration with Pivotal to build a global network of ‘Cloud Native Labs’ where enterprises will be able to build new and modernize existing applications for deployment to PCF
· Awarded Microsoft Azure US Consumption 2018 Partner of the Year, for the second consecutive year
· Winner of the Solstice 2018 Partner of the Year award
And here is management guidance from the Q1 earnings release:
· Subscription revenue of $97.5 to $98.5 million
· Total revenue of $163 to $165 million
· Non-GAAP loss from operations of $23 to $22 million
· Non-GAAP net loss per share of 9¢ to 8¢ assuming weighted average shares outstanding of approximately 258 million
And for the full year (compared to guidance given last quarter):
· Subscription revenue of $386.5 to $390.5 million (compared to $380 to $384 million at Q1)
· Total revenue of $647 to $653 million (compared to $642 to $649 million at Q1)
· Non-GAAP loss from operations of $86 to $83 million (compared to $96 to $91 million loss at Q1)
· Non-GAAP net loss per share of 36¢ to 34¢, assuming weighted average shares outstanding of approximately 251 million (compared to 39¢ to 37¢ loss at Q1)
I had hoped that investor expectations were lower and closer to the guidance that was given during Q1 but based on the market reaction it appears that the expectations were higher. At the afterhours price of 23.50, the new market cap is around $6.0B. With cash of $671M and using the guided sales of $650M, it now has a EV/sales ratio of 8.0. Compared to other software stocks with EV/sales ratios at 15 and higher, I am surprised by the strong downside reaction as you would think lower expectations would be built into a lower EV/sales valuation. One of the reasons I like PVTL so much is that you get exposure to the strong subscription growth while not paying a comparatively high valuation. I am not selling as I think the performance was very solid given the valuation.