Form S-1 · Pivotal Software Inc

Pivotal

Priced April 20, 2018 · $15.00 a share · Original on SEC EDGAR · PDF

Prospectus Summary


PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our Class A common stock. You should read this entire prospectus carefully, including the section titled "Risk Factors" and our consolidated financial statements and related notes. Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. Our 2016 fiscal year ("fiscal 2016") ended on January 29, 2016, our 2017 fiscal year ("fiscal 2017") ended on February 3, 2017, and our 2018 fiscal year ("fiscal 2018") ended on February 2, 2018.


PIVOTAL SOFTWARE, INC.

We are transforming how the world builds software.

Overview

We provide a leading cloud-native platform that makes software development and IT operations a strategic advantage for our customers. Our cloud-native platform, Pivotal Cloud Foundry ("PCF"), accelerates and streamlines software development by reducing the complexity of building, deploying and operating new cloud-native applications and modernizing legacy applications. This enables our customers' development and IT operations teams to spend more time writing code, waste less time on mundane tasks and focus on activities that drive business value – building and deploying great software. PCF customers can accelerate their adoption of a modern software development process and their business success using our platform through our complementary strategic services, Pivotal Labs ("Labs"). Enterprises across industries have adopted our platform to build, deploy and operate software, including enterprises in the automotive, financial services, industrial, insurance, media, retail, technology and telecommunications sectors.

Cloud-native software is reshaping businesses across all industries, empowering enterprises to innovate at a higher velocity and become more digital, mobile, data-driven and always-connected. Cloud-native software is designed to be highly available, scalable and modular to allow for frequent iteration and feature releases. Despite the widespread availability of private and public cloud infrastructure, many organizations are burdened by legacy technologies and software development processes that prevent them from fully realizing the benefits of cloud-native software. As a result, organizations require a modern agile development process and a cloud-native platform that can be deployed on every major private and public cloud.

Our offering, which includes PCF and Labs, enables organizations to build cloud-native software and compete in today's business environment.

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    PCF accelerates and streamlines software development by reducing the complexity of building, deploying and operating modern applications. PCF integrates an expansive set of critical, modern software technologies to provide a turnkey cloud-native platform. PCF combines leading open-source software with our robust proprietary software to meet the exacting enterprise-grade requirements of large organizations, including the ability to operate and manage software across private and public cloud environments, such as Amazon Web Services, Microsoft Azure, Google Cloud Platform, VMware vSphere and OpenStack. PCF is sold on a subscription basis.
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    Labs software development experts deliver strategic services that transfer the expertise for enterprises to accelerate their cloud-native transformation by implementing modern agile development practices. With Labs, we help customers co-develop new applications and transform existing ones while accelerating software development, streamlining IT operations and ultimately driving self-sustaining business transformation.

Our customers realize measurable improvement in developer productivity, software quality, security, time-to-market and IT operational efficiency. Some of our larger customers have achieved substantial structural efficiencies by leveraging our platform, such as significantly improving the ratio of developers to operators toward 200:1 or greater and increasing developer productivity, as measured by the amount of time developers are able to spend writing software code or by the frequency of meaningful improvements to the software they are developing, by 50% or more.

We market and sell PCF and Labs through our sales force and ecosystem partners. We leverage our mutually beneficial commercial and go-to-market relationships with Dell Technologies and VMware, Inc. ("VMware") to win new customers and to expand our customer footprint. We also work closely with large public cloud providers, including Google and Microsoft, to bring our customers' workloads to their cloud infrastructure. We have received numerous industry awards, including in 2017 the Google Cloud Technology Partner of the Year for 2016 and an Azure consumption partner of the year award from Microsoft for 2016. We intend to continue to grow PCF and scale our strategic services by relying on global systems integrators ("SI"), such as Accenture and Cognizant, and boutique consulting firms that are building focused practices around Pivotal technology implementation, application migration and cloud-native development.

Our complementary PCF and Labs offering enables organizations to effectively build cloud-native software and compete in today's business environment. Our customers often start with smaller PCF deployments in specific groups or departments and then expand their subscriptions as they seek to deploy and manage more applications and other workloads. At the end of fiscal 2018, our trailing four-quarter dollar-based net expansion rate was 158%. Some of our customers use Labs to drive successful outcomes in their organization using our platform as they learn and adopt our modern software development practices. There is a positive correlation between customers using Labs and the expansion of their PCF subscriptions, with the differential in customers who have used Labs expanding their PCF usage 1.5x more than those who have not used Labs. Optimizing this synergy, including through our SI partners, is a key aspect of our overall business strategy.

We are focused on subscription sales of our platform. Since announcing PCF in November 2013, our subscription customer count has grown rapidly to 319 as of the end of fiscal 2018. Our subscription revenue was $95.0 million, $150.0 million and $259.0 million for fiscal 2016, fiscal 2017 and fiscal 2018, respectively, representing year-over-year growth of 58% and 73% for our two most recent fiscal years. Our total revenue was $280.9 million, $416.3 million and $509.4 million for fiscal 2016, fiscal 2017 and fiscal 2018, respectively, representing year-over-year growth of 48% and 22% for our two most recent fiscal years. Fiscal 2018 was the first year in which subscription revenue exceeded our services revenue, and we expect that over time subscription revenue will become a larger percentage of our total revenue as customers continue to adopt PCF and as our SI partner ecosystem ramps to directly deliver strategic services to our customers. Our net loss was $282.7 million, $232.9 million and $163.5 million for fiscal 2016, fiscal 2017 and fiscal 2018, respectively.

Industry Background

Cloud-native software is reshaping businesses across all industries, empowering enterprises to innovate at a higher velocity and become more digital, mobile, data-driven and always-connected. Cloud-native software is designed to be highly available, scalable and modular to allow for frequent iteration and feature releases. Despite the widespread availability of private and public cloud infrastructure, many organizations are burdened by legacy technologies and software development processes that prevent them from fully realizing the benefits of cloud-native software. As a result, organizations require an agile development process and a cloud-native platform that can be deployed on every major private and public cloud.

Enterprises can revolutionize their customer experiences, help create new revenue streams and improve the cost and speed of business operations by building and deploying cloud-native software. To build and deploy cloud-native software and adopt cloud infrastructure, enterprises require new technology and process. "Technology" consists of the platform and tools necessary to develop and efficiently operate cloud-native software and its associated infrastructure. "Process" refers to the development and operational processes that consistently deliver high-quality software in a culture that embraces change.

    Approaches to Becoming Cloud Native

In order to effectively develop cloud-native software, enterprises need to recognize three fundamental imperatives: (1) the need for cloud infrastructure software optimized for continuous delivery and highly efficient IT operations, (2) the need for agile software development methodologies and (3) the need to leverage open-source software.

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    Cloud Infrastructure Software. To drive developer and operations efficiency gains, enterprises need to (1) implement software-defined data center infrastructure, server virtualization and application containers on modern hardware, (2) develop next-generation operational software and middleware enabling IT infrastructure to become more automated and programmatic, (3) break down the traditional monolithic software architecture into "microservices," integrated development frameworks and automated releases and (4) facilitate continuous delivery, lifecycle management and monitoring.
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    Agile Software Development Methodologies. To facilitate continuous delivery and efficient IT operations and to closely align with business objectives, enterprises need to adopt agile development and DevOps techniques to rapidly deploy and manage new software in shorter development cycles, with faster deployment frequency and more dependable releases. These techniques are increasingly becoming the modern way for enterprises to develop cloud-native software.
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    Open Source. Some of the most innovative technologies, including application containers, big data stores, developer frameworks and machine learning libraries, are open source. Enterprises need to leverage powerful open-source software technologies.

    Legacy IT Challenges: Our Opportunity

Despite the availability of these cloud technology and agile process advancements, many enterprises remain deeply invested in legacy technology and process that differ significantly from cloud-native approaches to software development and operations. These enterprises are seeking to leverage private and public cloud technologies and to use cloud-native software to transform their businesses. They continue to deploy monolithic software built on custom silos of supporting infrastructure. When changes to software become necessary, many manual steps and serial reviews and approvals by different functional teams are required, which can often lead to instability and downtime. For a large enterprise with hundreds or thousands of applications and large numbers of disparate hardware components in multiple data centers, the operational challenges can be daunting as hundreds or thousands of people in operations may be required just to support a small number of developers and to keep existing applications running. This complexity can create ingrained processes and cultures that are resistant to change, given the level of investment in legacy infrastructure and inefficient IT operations, which constrain innovation and new software development initiatives.

In addition to these technology challenges, many enterprises implement legacy software development approaches such as the "waterfall" process, in which software development proceeds in a strict sequence from conception to analysis, design, construction, testing, implementation and maintenance. By the time such software is ready to be released, requirements and business priorities often have changed. The waterfall process is ill-suited for software development and IT operations where the code and user requirements are constantly changing.

These legacy technologies and processes have created a number of challenges, including:

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    Protracted development cycles and low developer productivity. A Forrester study found that 72% of developers spend less than three hours a day productively writing code.
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    Operational inefficiencies. An International Data Corporation ("IDC") survey showed that IT personnel devote over 70% of their time to routine service request approval, monitoring, troubleshooting, provisioning, security patching and configuration management.
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    Lack of flexibility to use multiple clouds. Enterprises want the flexibility to choose between different clouds without having to rearchitect their software. However, if they deploy workloads to a single public cloud environment, they face difficulty moving those workloads to other public cloud environments. IDC expects more than 90% of enterprise IT organizations will commit to multi-cloud architectures by 2020.
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    Integration complexity. Legacy approaches to software development and IT operations have resulted in a patchwork of third-party tools, middleware, software components and operating systems that need to be regularly integrated and maintained.
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    Difficulty in securing legacy IT infrastructure. The silos and custom architecture found in legacy IT infrastructure are not designed to address evolving security threats.
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    Lack of enterprise-grade platform to leverage open-source software. Given the complexity and risk in adopting, integrating and maintaining an array of open-source technologies at enterprise scale, organizations need a single, secure and stable platform in order to leverage open-source software effectively.

Our Solution

We provide a leading cloud-native platform that makes software development and IT operations a strategic advantage for our customers. PCF customers can accelerate their adoption of modern software development practices through Labs, our complementary strategic services. Our customers realize measurable improvement in developer productivity, software quality, security, time-to-market and IT operational efficiency. Our offering helps make developing and operating software a strategic advantage for our customers, empowering them to revolutionize their customer experiences, helping create new revenue streams and improving the speed and cost of business operations through software.

Pivotal Customers Can Reallocate Spend from Infrastructure Operations to Software Development

Together, PCF and Labs provide the technology and the process to enable the operational efficiency and developer productivity needed to develop, deploy and manage cloud-native software.

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    PCF is a cloud-native platform that accelerates and streamlines software development by reducing the complexity of building, deploying and operating modern applications. PCF integrates an expansive set of critical, modern open-source and proprietary software technologies to provide a turnkey cloud-native platform. Our platform allows developers and IT operators to focus on activities that drive business value – building and deploying great software. From our single platform, PCF enables the continuous delivery of any application to every major private and public cloud. PCF combines a set of key platform components which include: a multi-cloud orchestration foundation, an embedded operating system, a central security and credential framework, a built-in advanced container networking and security engine, a complete and scalable application middleware environment and leading application and data microservices technologies. PCF also fosters a robust ecosystem of many first- and third-party cloud services and technologies which can be accessed on our platform through Pivotal Services Marketplace (the "Marketplace").
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    Labs software development experts deliver strategic services that transfer the expertise for enterprises to accelerate their cloud-native transformation by implementing modern agile development practices. With Labs, we help customers co-develop new applications and transform existing ones while accelerating software development, streamlining IT operations and ultimately driving self-sustaining business transformation.

Key benefits of our offering include:

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    Enhanced developer productivity. PCF dramatically increases developer productivity by providing a standard development platform, frameworks and architectural patterns, so that developers can spend more time writing software that drives value to the business and its customers. In addition, Labs enables enterprises to evolve beyond traditional waterfall processes through co-development projects. Many of our customers have increased developer productivity by 50% or more and dramatically increased the frequency of software releases, sometimes moving from a semi-annual to a weekly (or even daily) production release cadence.
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    Greater operational efficiency. PCF enables our customers to standardize and automate common IT processes across public and private cloud environments related to IT environment builds, software testing and release and infrastructure and application updates. Some of our larger customers have achieved substantial structural efficiencies by leveraging our platform, such as significantly improving the ratio of developers to operators toward 200:1 or greater and increasing developer productivity by 50% or more.
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    Flexibility to run software across private, public and multi-cloud environments. PCF gives our customers a consistent developer interface for application deployment and operation across private, public and multi-cloud environments.
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    Integrated by design. From our single platform, PCF integrates an expansive set of critical, modern open-source and proprietary software technologies to provide a turnkey cloud-native platform that enables the continuous delivery of any application to every major private and public cloud. In addition, PCF fosters a robust ecosystem integrated through our Marketplace to extend the capabilities of the platform with many first- and third-party cloud services and technologies such as data persistence, caching, messaging, continuous integration and security.
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    Unique infrastructure-native approach to security. Our approach to security is designed to enable automatic updates to the platform without application downtime, eliminating the compromise between security and availability associated with legacy approaches to IT operations.
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    Enterprise-grade platform. Our platform is built to meet the exacting performance, availability, security and management requirements of large organizations. We combine the latest innovations from open-source projects such as application containers, big data stores and developer frameworks with our robust proprietary software components, such as platform management and monitoring, developer experience and authentication, to form an enterprise-grade platform. We enable large enterprises to leverage the benefits of cutting-edge open-source technologies built into PCF, our enterprise-grade platform, for their mission-critical operations and applications.

Competitive Strengths

Our competitive strengths include:

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    First mover in cloud-native transformations.
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    Enterprise-grade software platform integrating open source.
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    Blue-chip customer adoption.
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    Large and growing PCF ecosystem.
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    Leading cloud-native platform with strategic services.
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    Viral adoption together with C-level focus.
THIS IS THE END OF A COMPOSITION COMPONENT

Market Opportunity

Our cloud-native software addresses IT spending across the rapidly growing market for public cloud workloads, sometimes referred to as Platform-as-a-service ("PaaS"), and the market for application infrastructure, middleware and development software. We believe our cloud-native platform opportunity is the aggregate of these two markets, with spending today estimated at over $50 billion.

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    According to Gartner, spending on cloud application infrastructure services (PaaS) is expected to be $16.0 billion in 2018, growing to $29.0 billion by 2021, representing a 22% compound annual growth rate ("CAGR").
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    According to Gartner, spending on application infrastructure, middleware and development solutions is expected to be $43.2 billion in 2018, growing to $51.4 billion by 2021, representing a 6% CAGR.

Growth Strategy

Key elements of our growth strategy include our plans to:

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    Extend technology lead of our cloud-native platform.
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    Maintain open cloud-native platform advantage.
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    Continue to drive new customer adoption.
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    Expand adoption within existing customers.
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    Continue to capitalize upon our relationships with our strategic partners.
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    Further leverage partnerships with public cloud vendors.
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    Continue to leverage the combined strengths of PCF and Labs to drive PCF expansion.

Culture

We believe our culture is unique and critical to our mission of transforming how the world builds software. Our culture reflects the learnings of our agile development roots and applies those insights to all aspects of our business. We have three core values:

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    Do the right thing.
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    Do what works.
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    Be kind.

Risk Factors

Investing in our Class A common stock involves risk. You should carefully consider all the information in this prospectus prior to investing in our Class A common stock. These risks are discussed more fully in the section titled "Risk Factors" immediately following this prospectus summary and elsewhere in this prospectus. These risks and uncertainties include, but are not limited to, the following:

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