Why Pivotal Software Inc (NYSE: PVTL) stock is falling

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Pivotal Software Inc (NYSE: PVTL) stock fell over 3.6% in the pre-market session on March 15th, 2019 (Source: Google finance) after the company posted mixed results for the fourth quarter of FY 19. PVTL added nine net new customers in the quarter, bringing total new customer adds to 58 in fiscal-year ’19, up 32%, compared to 44% in fiscal 2018. Total gross margin rose to 68% for Q4 and improved an impressive nine points year over year, primarily as a result of our top-line subscription revenue growth, which continued to drive mix shift toward subscription revenue subscription. Subscription gross margin was 93%, and services gross margin with 17%. Operating loss for the quarter was $20.8 million, with an operating margin loss of 12%, improving 13 points from Q4 of last year. Operating loss for the year improved 45% to $71.3 three million, with an operating margin loss of 11%, increasing 14 points from fiscal 2018. PVTL exited Q4 with $702 million in cash and cash equivalents, up $629 million year over year, primarily due to proceeds from the IPO. Cash flow from operations was $8 million in Q4 and negative $5.4 million for the fiscal 2019.

PVTL in the fourth quarter of FY 19 has reported the adjusted loss per share of 7 cents, beating the analysts’ estimates for the adjusted loss per share of 9 cents. The company had reported the adjusted revenue growth of 27 percent to $169.2 million in the fourth quarter of FY 19, slightly missing the analysts’ estimates for revenue of $169.82 million. Subscription revenue generated $112.5 million in Q4, more than $100 million for the second quarter in a row, with year-over-year subscription growth at 50%. The subscription performance in Q4 was driven primarily by customer expansions as customers increase the number of workloads they are running on PCS and expanded their consumption of the software. In Q4, service revenue declined 3% year over year to $56.7 million and represented 34% of total revenue, compared to 44% a year ago. Services revenue came in slightly lighter than the company were expecting as some services projects pushed out due to Q4 holidays. Services are strategic for the company in driving subscription growth. Customers who use Labs continue to grow their subscription footprint at a rate that is 1.5 times greater than customers who do not use Labs.

For the fiscal first quarter, the analysts model adjusted losses of 6 cents a share and sales of $190.1 million. Pivotal said it expects fiscal first-quarter adjusted losses of 15 cents to 13 cents and revenue of $183 million to $185 million.

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