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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________

FORM 10-Q

______________________________________________



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~August~~November 21, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-38460

_________________________________________________

Pivotal Software, Inc.

(Exact name of registrant as specified in its charter)

__________________________________________________



Delaware		94-3094578
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

875 Howard Street, Fifth Floor

San Francisco, California 94103

(415) 777-4868

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01	PVTL	New York Stock Exchange

_______________________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☑	Smaller reporting company	☐
		Emerging growth company	☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑.

There were 281,106,853 shares of common stock outstanding, consisting of 105,592,581 outstanding shares of Class A common stock and 175,514,272 outstanding shares of Class B common stock, as of November 29, 2019.

Pivotal Software, Inc.

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of August 2, 2019 and February 1, 2019	1
	Condensed Consolidated Balance Sheets as of November 1, 2019 and February 1, 2019	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended August 2, 2019 and August 3, 2018	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended November 1, 2019 and November 2, 2018	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended August 2, 2019 and August 3, 2018	3
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended November 1, 2019 and November 2, 2018	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended August 2, 2019 and August 3, 2018	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 1, 2019 and November 2, 2018	4
	Condensed Consolidated Statement of Stockholders’ Equity for the Three and Six Months Ended August 2, 2019	5
	Condensed Consolidated Statement of Stockholders’ Equity for the Three and Nine Months Ended November 1, 2019	5
	Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the Three and Six Months Ended August 3, 2018	6
	Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the Three and Nine Months Ended November 2, 2018	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3031
Item 4.	Controls and Procedures	3132
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3233
Item 1A.	Risk Factors	3234
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6061
Item 3.	Defaults Upon Senior Securities	6061
Item 4.	Mine Safety Disclosures	6061
Item 5.	Other Information	6061
Item 6.	Exhibits	6062
Signatures		6163

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Pivotal Software, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

	August 2, 2019			February 1, 2019
	November 1, 2019			February 1, 2019
Assets
Current assets:
Cash and cash equivalents	$	~~808~~821,~~432~~939		$	701,733
Accounts receivable, net of allowance of $5,965 and $4,266 as of August 2, 2019 and February 1, 2019, respectively	122,713			308,492
Accounts receivable, net of allowance of $5,511 and $4,266 as of November 1, 2019 and February 1, 2019, respectively	156,627			308,492
Due from Parent	301,~~081~~627			951
Deferred sales commissions, current	3635,~~124~~669			39,572
Other assets, current	1217,~~948~~426			16,738
Total current assets	1,~~010~~033,~~298~~288			1,067,486
Property, plant and equipment, net	2726,~~462~~167			27,879
Operating lease right-of-use assets	~~130~~126,~~102~~416			—
Intangible assets, net	1514,~~981~~496			18,680
Goodwill	696,226			696,226
Deferred income taxes	~~342~~300			258
Deferred sales commissions, noncurrent	3234,~~865~~646			35,522
Other assets, noncurrent	7,~~416~~266			4,417
Total assets	$	1,~~920~~938,~~692~~805		$	1,850,468
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1115,~~554~~238		$	18,421
Due to Parent	1216,~~007~~355			20,241
Accrued expenses	6054,~~260~~549			64,723
Income taxes payable	~~1,113~~590			1,232
Deferred revenue, current	~~304~~289,~~977~~693			376,985
Operating lease liabilities, current	2122,~~820~~571			—
Other liabilities, current	510,~~356~~687			4,373
Total current liabilities	~~417~~409,~~087~~683			485,975
Deferred revenue, noncurrent	5547,~~429~~071			89,603
Operating lease liabilities, noncurrent	~~121~~116,~~520~~305			—
Other liabilities, noncurrent	2,~~157~~183			9,412
Total liabilities	~~596~~575,~~193~~242			584,990
Commitments and contingencies (Note 15)
Stockholders’ equity:
Class A common stock	~~986~~1,055			901
Class B common stock	1,755			1,755
Additional paid-in capital	2,~~660~~732,~~012~~206			2,540,921
Accumulated deficit	(1,~~344~~377,~~355~~458		)	(1,284,503		)
Accumulated other comprehensive income	5,~~421~~329			5,687
Total Pivotal stockholders’ equity	1,~~323~~362,~~819~~887			1,264,761
Non-controlling interest	~~680~~676			717
Total stockholders’ equity	1,~~324~~363,~~499~~563			1,265,478
Total liabilities and stockholders’ equity	$	1,~~920~~938,~~692~~805		$	1,850,468

The accompanying notes are an integral part of the condensed consolidated financial statements.

Pivotal Software, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

~~Six~~Nine Months Ended

August 2, 2019

August 3, 2018

August 2, 2019

August 3, 2018

November 1, 2019

November 2, 2018

November 1, 2019

November 2, 2018

Revenue:

Subscription

~~134~~139,~~990~~758

97100,~~494~~775

~~263~~403,~~846~~604

~~187~~288,~~615~~390

Services

58,~~006~~521

6667,~~914~~368

~~114~~173,~~865~~386

~~132~~199,~~528~~896

Total revenue

~~192~~198,~~996~~279

~~164~~168,~~408~~143

~~378~~576,~~711~~990

~~320~~488,~~143~~286

Cost of revenue:

Subscription

9,~~108~~649

87,~~105~~813

1727,~~664~~313

1624,~~234~~047

Services

51,~~417~~292

53,~~129~~179

~~103~~154,~~463~~755

~~104~~157,~~291~~470

Total cost of revenue

60,~~525~~941

6160,~~234~~992

~~121~~182,~~127~~068

~~120~~181,~~525~~517

Gross Profit

~~132~~137,~~471~~338

~~103~~107,~~174~~151

~~257~~394,~~584~~922

~~199~~306,~~618~~769

Operating expenses:

Sales and marketing

8283,~~639~~198

70,~~550~~620

~~164~~247,~~260~~458

~~139~~210,~~688~~308

Research and development

58,~~676~~832

4751,~~001~~880

~~114~~173,~~931~~763

91143,~~429~~309

General and administrative

2230,~~557~~640

2120,~~025~~546

4475,~~702~~342

3757,~~433~~979

Total operating expenses

~~163~~172,~~872~~670

~~138~~143,~~576~~046

~~323~~496,~~893~~563

~~268~~411,~~550~~596

Loss from operations

(3135,~~401~~332

)

(35,~~402~~895

)

(66101,~~309~~641

)

(68104,~~932~~827

)

Other income, net

32,~~820~~634

~~237~~1,866

710,~~420~~054

~~546~~2,412

Loss before provision for (benefit from) income taxes

(27,581

)

(35,165

)

(58,889

)

(68,386

)

Loss before provision for income taxes

(32,698

)

(34,029

)

(91,587

)

(102,415

)

Provision for (benefit from) income taxes

525

437

1,000

(227

)

Provision for income taxes

409

776

1,409

549

Net loss

(2833,~~106~~107

)

(3534,~~602~~805

)

(5992,~~889~~996

)

(68102,~~159~~964

)

Less: Net loss (income) attributable to non-controlling interest

(94

)

(545

)

3741

37(8

)

Net loss attributable to Pivotal

(2833,~~115~~103

)

(3534,~~607~~850

)

(5992,~~852~~955

)

(68102,~~122~~972

)

Net loss per share attributable to common stockholders, basic and diluted

(0.1012

)

(0.1413

)

(0.2234

)

(0.3850

)

Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted

~~272~~277,~~724~~567

~~257~~258,~~240~~408

~~270~~272,~~619~~935

~~181~~207,~~404~~072

The accompanying notes are an integral part of the condensed consolidated financial statements.

Pivotal Software, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

	Three Months Ended						~~Six~~Nine Months Ended
	August 2, 2019			August 3, 2018			August 2, 2019			August 3, 2018
	November 1, 2019			November 2, 2018			November 1, 2019			November 2, 2018
Net loss	$	(2833,~~106~~107	)	$	(3534,~~602~~805	)	$	(5992,~~889~~996	)	$	(68102,~~159~~964	)
Foreign currency translation adjustments	(7492		)	5(194		)	(~~266~~358		)	~~166~~(28		)
Comprehensive loss	(2833,~~180~~199		)	(3534,~~597~~999		)	(6093,~~155~~354		)	(67102,~~993~~992		)
Less: Net loss attributable to the non-controlling interest	(9		)	(5		)	37			37
Less: Net loss (income) attributable to the non-controlling interest	4			(45		)	41			(8		)
Comprehensive loss attributable to Pivotal	$	(2833,~~189~~195	)	$	(35,~~602~~044	)	$	(6093,~~118~~313	)	$	(67103,~~956~~000	)

The accompanying notes are an integral part of the condensed consolidated financial statements.

Pivotal Software, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Six Months Ended
	Nine Months Ended
	August 2, 2019			August 3, 2018
	November 1, 2019			November 2, 2018
Cash flows from operating activities:
Net loss	$	(5992,~~889~~996	)	$	(68102,~~159~~964	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization of intangible assets	812,~~434~~743			913,~~354~~824
Amortization of lease right-of-use assets and other expense	1522,~~417~~946			—
Stock-based compensation expense	4773,~~397~~561			2949,~~805~~233
Provision for doubtful accounts	~~(197~~612		)	~~619~~2,361
Deferred income taxes	(~~103~~57		)	(~~405~~147		)
Gain on sale of investment	(746		)	(3,234		)
Other	~~497~~326			1,~~461~~491
Changes in assets and liabilities
Accounts receivable	~~185~~151,~~566~~221			7643,~~340~~895
Due from Parent	(21,~~230~~076		)	~~(236~~37		)
Deferred sales commissions	64,~~105~~780			46,~~272~~697
Other assets	2(1,~~788~~553		)	(2,~~457~~758		)
Accounts payable	(72,~~150~~851		)	(~~547~~2,041		)
Due to Parent	(85,~~119~~584		)	(3,~~185~~337		)
Deferred revenue	(~~106~~129,~~276~~804		)	(10,~~554~~189		)
Accrued expenses	(39,~~916~~442		)	(16,~~213~~186		)
Operating lease liabilities	(1423,~~811~~080		)	—
Other liabilities	~~973~~6,039			59,~~959~~970
Net cash provided by operating activities	63,740			22,820
Net cash provided by (used in) operating activities	5,039			(13,348		)
Cash flows from investing activities:
Additions to property, plant and equipment	(47,~~936~~222		)	(46,~~052~~929		)
Proceeds from sale of investment	1,929			3,234
Net cash used in investing activities	(35,~~007~~293		)	(~~818~~3,695		)
Cash flows from financing activities:
Proceeds from the initial public offering, net of issuance costs paid	—			544,674
Proceeds from the issuance of common stock	3685,~~542~~172			941,~~424~~852
Proceeds from employee stock plans	8,967			—
Contribution from Dell	—26,500			41,277
Borrowings on credit facility	—			15,000
Repayments on credit facility	—			(35,000		)
Net cash provided by financing activities	45120,~~509~~639			~~575~~607,~~375~~803
Effect of exchange rate changes on cash and cash equivalents	~~457~~(179		)	1,~~319~~032
Net increase in cash and cash equivalents	~~106~~120,~~699~~206			~~598~~591,~~696~~792
Cash and cash equivalents at beginning of period	701,733			73,012
Cash and cash equivalents at end of period	$	~~808~~821,~~432~~939		$	~~671~~664,~~708~~804
Supplemental disclosure of non-cash operating:
Operating right-of-use assets obtained in exchange for lease liabilities	68,~~787~~105			—
Supplemental disclosure of non-cash financing
Investment from Dell included in Due from Parent	26,900			—
Amounts owing to Dell included in Due to Parent	(1,800		)	—

The accompanying notes are an integral part of the condensed consolidated financial statements.

Pivotal Software, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(in thousands)

(unaudited)

	Class A Common Stock			Class B Common Stock			Additionalpaid-in capital			Accumulated deficit			Accumulated othercomprehensive income			Non-controlling interest			Totalstockholders’ equity
	Shares	Par value		Shares	Par value
Balances at February 1, 2019	90,124	$	901	175,514	$	1,755	$	2,540,921		$	(1,284,503	)	$	5,687		$	717		$	1,265,478
Stock-based compensation (Pivotal equity)							21,707												21,707
Issuance of common stock under employee equity plans	4,159	42					29,972												30,014
Vested restricted stock units	2,018	20					(20		)										—
Investment from Dell, net							26,730												26,730
Investment from VMware							33												33
Translation adjustment													(192		)				(192		)
Net Loss										(31,737		)				(46		)	(31,783		)
Balances at May 3, 2019	96,301	$	963	175,514	$	1,755	$	2,619,343		$	(1,316,240	)	$	5,495		$	671		$	1,311,987
Stock-based compensation (Pivotal equity)							25,166												25,166
Issuance of common stock under employee equity plans	1,793	18					14,852												14,870
Vested restricted stock units	539	5					(5		)										—
Investment from Dell, net							690												690
Investment from VMware							(34		)										(34		)
Translation adjustment													(74		)				(74		)
Net Loss										(28,115		)				9			(28,106		)
Balances at August 2, 2019	98,633	$	986	175,514	$	1,755	$	2,660,012		$	(1,344,355	)	$	5,421		$	680		$	1,324,499
Stock-based compensation (Pivotal equity)							26,047												26,047
Issuance of common stock under employee equity plans	6,276	63					48,637												48,700
Vested restricted stock units	629	6					(6)												—
Investment from Dell, net							(2,484)												(2,484		)
Translation adjustment													(92		)				(92		)
Net Loss										(33,103		)				(4		)	(33,107		)
Balances at November 1, 2019	105,538	$	1,055	175,514	$	1,755	$	2,732,206		$	(1,377,458	)	$	5,329		$	676		$	1,363,563

The accompanying notes are an integral part of the condensed consolidated financial statements.

Pivotal Software, Inc.

Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(in thousands)

(unaudited)

	Redeemable Convertible Preferred Stock				Class A Common Stock			Class B Common Stock			Additionalpaid-in capital			Accumulated deficit			Accumulated othercomprehensive income			Non-controlling interest			Totalstockholders’ equity
	Shares	Amount			Shares	Par value		Shares	Par value
Balances at February 2, 2018	147,879	$	1,248,327		4,293	$	43	65,048	$	650	$	595,113		$	(1,142,600	)	$	5,554		$	712		$	(540,528	)
Stock-based compensation (Pivotal equity)											10,526												10,526
Issuance of common stock under employee equity plans					1,087	11					6,599												6,610
Conversion of preferred stock to common stock	(147,879)	(1,248,327		)	37,412	374		110,466	1,105		1,246,848												1,248,327
Initial public offering, net of issuance costs					38,667	387					544,034												544,421
Investment from Dell, net											11,662												11,662
Investment from VMware											(51		)										(51		)
Translation adjustment																	161						161
Net Loss														(32,515		)				(42		)	(32,557		)
Balances at May 4, 2018	—	$	—		81,459	$	815	175,514	$	1,755	$	2,414,731		$	(1,175,115	)	$	5,715		$	670		$	1,248,571
Stock-based compensation (Pivotal equity)											18,747												18,747
Issuance of common stock under employee equity plans					400	4					2,810												2,814
Investment from Dell, net											255												255
Investment from VMware											25												25
Translation adjustment																	5						5
Net Loss														(35,607		)				5			(35,602		)
Balances at August 3, 2018	—	$	—		81,859	$	819	175,514	$	1,755	$	2,436,568		$	(1,210,722	)	$	5,720		$	675		$	1,234,815
Stock-based compensation (Pivotal equity)											19,151												19,151
Issuance of common stock under employee equity plans					4,885	48					32,853												32,901
Investment from Dell, net											426												426
Investment from VMware											41												41
Translation adjustment																	(194		)				(194		)
Net Loss														(34,850		)				45			(34,805		)
Balances at November 2, 2018	—	$	—		86,744	$	867	175,514	$	1,755	$	2,489,039		$	(1,245,572	)	$	5,526		$	720		$	1,252,335

The accompanying notes are an integral part of the condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

(unaudited)


1.	Overview and Basis of Presentation

Company and Background

Pivotal Software, Inc. and its consolidated subsidiaries (“Pivotal,” “we,” “us,” “our” and the “Company”) provide a leading cloud-native application platform, Pivotal Cloud Foundry (“PCF”), and differentiated services, Pivotal Labs (“Labs”). Our leading software platform and differentiated services enable enterprises to adopt modern software and development methodologies that transform their products and the economics of their business. We help make software development and operations a strategic advantage for our customers to revolutionize the experiences they offer their own customers, drive new sources of revenue and improve the speed and cost of business operations. We were incorporated in the State of Delaware on April 1, 2013.

Reverse Stock Split

In April 2018, the Company’s board of directors and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation effecting a 1-for-2 reverse stock split of the Company’s issued and outstanding shares of common stock and preferred stock. The reverse split was effected on April 6, 2018. The par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock split. All issued and outstanding share and per share amounts included in the accompanying unaudited condensed consolidated financial statements have been adjusted to reflect this reverse stock split for all periods presented.

Fiscal Years

Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. Our 2019 fiscal year (“fiscal 2019”) ended on February 1, 2019 and our 2020 fiscal year (“fiscal 2020”) will end on January 31, 2020.

Initial Public Offering

On April 19, 2018, we commenced an initial public offering (“IPO”), which closed on April 24, 2018. As part of the IPO, we issued and sold 38,667,000 shares of Class A common stock, which included 5,550,000 shares sold pursuant to the exercise by the underwriters’ option to purchase additional shares at a public offering price of $15.00 per share. We received net proceeds of $548.1 million from the IPO, after underwriters’ discounts and commissions and before deducting offering costs of approximately $3.7 million. Prior to the completion of the IPO, all shares of Series A and C-1 redeemable convertible preferred stock then outstanding were converted into 110,466,653 shares of Class B common stock on a one-to-one basis and all shares of Series B and C redeemable convertible preferred stock then outstanding were converted into 37,412,396 shares of Class A common stock on a one-to-one basis.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated financial statements include the results of Pivotal Software, Inc. and its wholly-owned and majority-owned subsidiaries. The condensed consolidated balance sheet as of February 1, 2019 included herein was derived from the audited financial statements as of that date. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of our management, the information contained herein reflects all adjustments necessary for a fair statement of Pivotal’s results of operations, financial position and cash flows for the periods presented. All such adjustments are of a normal, recurring nature. The results of operations for the periods presented in this report are not necessarily indicative of results to be expected for the full fiscal year 2020. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended February 1, 2019, filed with the SEC on March 29, 2019.

Our majority-controlling stockholder is Dell Technologies Inc. (“Dell”). VMware, Inc. (“VMware”), which is also a majority-owned subsidiary of Dell, and Dell are collectively referred to as the “Parent” in these notes to the consolidated financial statements. Our results of operations and financial position are consolidated with Dell'’s financial statements.

Our financial information includes estimates and allocations of certain corporate functions provided to us by Dell. These estimates and allocations of costs are considered reasonable by our management. Our historical results are not necessarily indicative of what our results of operations, financial position, cash flows or costs and expenses would have been, or will be in future periods, had we transacted with a third party during the periods presented.

Proposed Merger ~~Agreement~~with VMware

On August 22, 2019, Pivotal entered into an Agreement and Plan of Merger (the “Merger Agreement”) with VMware and Raven ~~Acquisition~~Transaction Sub, Inc., a Delaware corporation and a wholly owned subsidiary of VMware (~~the~~“Merger "Sub”). The Merger Agreement" provides that, subject to certain terms and conditions, Merger Sub will merge with and into Pivotal (the “Merger”)~~. See~~, ~~"Note~~with 17Pivotal ~~---~~surviving ~~Subsequent~~the ~~Events"~~Merger ~~for~~and ~~additional~~becoming ~~information~~a wholly owned subsidiary of VMware.

Pivotal and VMware are both majority-owned subsidiaries of Dell. Based on the amount of outstanding capital stock reported in this report on Form 10-Q, VMware owns approximately 15.7% of Pivotal’s outstanding common stock, consisting entirely of shares of Pivotal’s Class B common stock, par value $0.01. Dell indirectly through VMware and through EMC Equity Assets LLC, a Delaware limited liability company (“EMC”), beneficially owns 100% of the outstanding shares of the Class B common stock, representing approximately 62.4% of Pivotal’s outstanding common stock.

The terms of the Merger Agreement provide that, unless otherwise specified in the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of Pivotal’s Class A common stock will be canceled and automatically converted into the right to receive $15.00 in cash, without interest and subject to deduction for any required withholding tax. The terms of the Merger Agreement also provide that, unless otherwise specified in the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of the Class B common stock will be converted into the right to receive 0.0550 of a share of Class B common stock of VMware.

The Merger and the Merger Agreement have been approved by the boards of directors of each of VMware (acting upon the unanimous recommendation of a special committee of the board of directors of VMware, consisting solely of independent and disinterested directors, authorized to, among other things, negotiate, evaluate and approve or disapprove potential transactions with Pivotal) and Pivotal (acting upon the unanimous recommendation of a special committee of the board of directors of Pivotal (the “Pivotal Special Committee”), consisting solely of independent and disinterested directors authorized to, among other things, negotiate, evaluate and approve or disapprove a potential transaction with VMware).

Completion of the transaction is conditioned on the adoption of the Merger Agreement by the holders of (i) at least a majority of the outstanding shares of the Class A common stock not owned by VMware or any of its affiliates (including Dell and EMC), (ii) at least a majority of the outstanding shares of the Class A common stock, (iii) at least a majority of outstanding shares of the Class B common stock, and (iv) at least a majority of the outstanding shares of the Class A common stock and the Class B common stock, voting together as a single class, which condition is not subject to waiver by Pivotal or VMware.

Completion of the transaction is also subject to other customary closing conditions including (i) the absence of any order, judgment or decree by any governmental entity that prohibits or makes the consummation of the transaction illegal, (ii) subject to certain exceptions, the accuracy of each party’s representations and warranties and (iii) compliance in all material respects by each party with its obligations under the Merger Agreement. The transaction is not subject to a financing condition.

The Merger Agreement contains customary representations and warranties of both Pivotal and VMware. Pivotal has also agreed to customary covenants regarding the operation of Pivotal and its subsidiaries prior to the effective time of the Merger, including covenants not to, during the pendency of the Merger, solicit alternative transactions or, subject to certain exceptions, enter into discussions concerning, or provide confidential information in connection with, an alternative transaction.

The Merger Agreement contains certain customary termination rights for Pivotal and VMware, including a right for either party to terminate the Merger Agreement if the Merger is not completed by February 18, 2020, unless otherwise extended pursuant to the terms of the Merger Agreement. The Merger Agreement further provides that, upon termination of the Merger Agreement under certain specified circumstances, Pivotal will be obligated to pay VMware a termination fee of $95.0 million.

Concurrently with the execution of the Merger Agreement, Ford Motor Company (“Ford”) entered into a voting agreement pursuant to which Ford has agreed, among other things and subject to the terms and conditions set forth therein, to vote its shares of the Class A common stock in favor of the adoption of the Merger Agreement and the transactions contemplated thereby, including the Merger. Until the closing, Pivotal will continue to operate as an independent company.

Pivotal’s definitive proxy statement on Schedule 14A and amended Schedule 13E-3 were filed with the SEC on November 27, 2019. Pivotal has set the close of business on November 4, 2019 as the record date for the special meeting of

stockholders scheduled for December 27, 2019, at which stockholders will vote on, among other things, a proposal to approve and adopt the Merger Agreement.

A description of the material terms of the Merger Agreement can be found in Pivotal’s Current Report on Form 8-K filed with the SEC on August 27, 2019 and Pivotal’s definitive proxy statement on Schedule 14A.


2.	Significant Accounting Policies

Consolidation

The condensed consolidated financial statements and accompanying notes are prepared in accordance with GAAP and include our accounts and the accounts of our majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.

Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Estimates are revised as additional information becomes available. In the condensed consolidated statements of operations, estimates are used when accounting for revenue arrangements, including the determination of the standalone selling price of performance obligations, the amortization period of deferred commissions, income taxes and the related valuation allowance and the valuation of common stock options. In the condensed consolidated balance sheets, estimates are used in determining the valuation and recoverability of assets, such as accounts receivable, fixed assets, deferred sales commissions, goodwill and other identifiable intangible assets, and estimates are used in determining the reported amounts of liabilities, including the impact of contingencies and operating lease liabilities, all of which also impact the condensed consolidated statements of operations. Actual results could differ from these estimates.

Significant Accounting Policies

Notwithstanding the addition of the policy below for leases, there were no significant changes to our accounting policies disclosed in “Note 2 – —Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the fiscal year ended February 1, 2019.

Leases

We determine if an arrangement is a lease at its inception. Our operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for our operating leases, we generally use an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating right-of-use (“ROU”) assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term. We account for lease and non-lease components as a single lease component for all of our operating leases.

Our operating leases are included in operating ROU assets, current operating lease liabilities and noncurrent operating lease liabilities in our condensed consolidated balance sheet. Leases with a term of 12 months or less are not recorded on the condensed consolidated balance sheet.

Variable lease payments, which do not vary based on an index or rate, are excluded from our ROU asset and lease liability determination. Our variable lease payments are typically usage-based and we record them in the period in which the obligation for those payments is incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Recently Adopted Accounting Pronouncement

Leases—In 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),”, which requires lessees to recognize most lease liabilities on their balance sheets but recognize the lease expense on their statements of operations in a manner similar to current practice. The standard states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The standard is effective for annual and interim periods beginning with our fiscal 2020~~, and early adoption is permitted~~. We have adopted this standard on the first day of our fiscal year ending January 31, 2020, using a modified retrospective transition method. We elected the transition method discussed in ASU 2018-11 and our reporting for the comparative periods presented in the year of adoption continue to be in accordance with “Leases (Topic 840),” including the associated disclosure requirements. We elected the package of practical expedients permitted under the transition guidance, which, among other things, allows us to carry forward the historical lease classification. We did not elect the practical expedient to use hindsight in determining the lease term and in assessing impairment of right-of-use assets.

The adoption of this standard effective the beginning of our new fiscal year, resulted in the recognition of operating lease assets and liabilities of approximately $136.4 million and $149.1 million, respectively, as of February 2, 2019. The difference between the amounts, represented the deferred rent for leases that existed as of the date of adoption, which was an offset to the opening balance of right-of-use assets. The adoption of the standard on February 2, 2019 did not have a material impact on our condensed consolidated statements of operations, stockholders’ equity and cash flows.

New Accounting Pronouncements to be Adopted

Financial Instruments—Credit Losses—In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 changes the impairment model for most financial assets, and will require the use of an expected loss model in place of the currently used incurred loss method. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. This update to the standard is effective for our interim and annual periods beginning February 1, 2020. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements.

Intangibles—Goodwill and Other—Internal-Use Software—In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update to the standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Entities can choose to adopt the ASU 2018-15 prospectively or retrospectively. This standard is effective for our interim and annual periods beginning February 1, 2020. The Company is currently evaluating the impact of the adoption of ASU 2018-15 on its consolidated financial statements.


3.	Deferred Sales Commissions

Deferred sales commissions, current and noncurrent, were $6970.0 3 million and $75.1 million as of ~~August~~November 21, 2019 and February 1, 2019, respectively. Amortization expense for deferred commissions costs was $1213.76 million and $1112.85 million for the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively, and was $2640.62 million and $2436.49 million for the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively. We amortize the commissions related to sales to new subscription customers, or the expansion of existing subscription customers, over an estimated period of benefit which has been determined to be the expected customer life. We amortize the commissions related to renewals of existing subscription customer contracts over the term of the contracts. Commissions paid for services contracts are amortized over the expected service delivery periods of the services. There were no impairment losses recorded related to the commissions costs capitalized for the periods presented.

910


4.	Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands):

	August 2, 2019			February 1, 2019
	November 1, 2019			February 1, 2019
Furniture and fixtures	$	7,~~732~~844		$	7,298
Equipment	2425,~~329~~313			21,471
Software	7,~~261~~700			6,900
Leasehold improvements	39,~~368~~683			38,171
Total property, plant and equipment	7880,~~690~~540			73,840
Accumulated depreciation	(5154,~~228~~373		)	(45,961		)
Property, plant and equipment, net	$	2726,~~462~~167		$	27,879

For both the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, depreciation expense was $2.8 million ~~and $2.9 million~~, ~~respectively,~~ and for the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, depreciation expense was $58.76 million and $58.97 million, respectively.


5.	Intangible Assets

Intangible assets, excluding goodwill, consist of the following (in thousands):

	August 2, 2019
	November 1, 2019
	GrossCarryingAmount		AccumulatedAmortization			Net BookValue
Purchased technology	$	87,573	$	(87,~~539~~560	)	$	3413
Trademarks and tradenames	12,900		(12,~~325~~681		)	~~575~~219
Customer relationships and customer lists	55,800		(4041,~~428~~536		)	1514,~~372~~264
Intangible Assets	$	156,273	$	(~~140~~141,~~292~~777	)	$	1514,~~981~~496



	February 1, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Book Value
Purchased technology	$	87,573	$	(87,420	)	$	153
Trademarks and tradenames	12,900		(11,612		)	1,288
Customer relationships and customer lists	55,800		(38,561		)	17,239
Intangible Assets	$	156,273	$	(137,593	)	$	18,680

For the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, amortization expense was $1.5 million and $1.76 million, respectively, and for the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, amortization expense was $24.72 million and $35.41 million, respectively.

As of ~~August~~November 21, 2019, future expected amortization expense of intangible assets is expected to be as follows (in thousands):

Fiscal Year	AmortizationExpense
Remainder of 2020	$	21,~~759~~274
2021	3,835
2022	3,111
2023	2,948
2024	2,693
Thereafter	635

1011

6. Leases

We lease certain office spaces which we have classified as operating leases. Most of our leases include one or more options to renew. The exercise of lease renewal options are at our sole discretion and we included all renewals that are reasonably certain at the reporting period end date in the calculation of our ROU assets and liabilities.

Certain of our sublease arrangements include an option to early terminate the lease arrangement. We do not disclose sublease income for periods for which a termination option exists, unless we are reasonably certain it will not be exercised.

Supplemental balance sheet information related to leases were as follows:

	August 2, 2019
	November 1, 2019
Operating leases:
Weighted average remaining lease term (in years)	6.86
Weighted average discount rate (in percentage points)	6.0

The components of lease expense for the periods presented were as follows (in thousands):

	Three months ended			~~Six~~Nine months ended
	August 2, 2019			August 2, 2019
	November 1, 2019			November 1, 2019
Operating lease cost	$	7,~~804~~529		$	1522,~~417~~946
Short term lease cost (a)	—			—
Variable lease cost	2,~~056~~370			36,~~942~~304
Sublease income	(21,~~167~~322		)	(35,~~938~~260		)
Total net lease cost	$	78,~~693~~577		$	1523,~~421~~990

(a) During the three and ~~six~~nine months ended ~~August~~November 21, 2019, ~~we had~~ no material short-term leases were capitalized.

Maturities of lease liabilities were as follows (in thousands):

	August 2, 2019
	November 1, 2019
	Operating Leases (a)
Remainder of 2020	$	149,~~536~~232
2021	30,~~783~~738
2022	2928,~~104~~639
2023	24,~~401~~422
2024	21,~~011~~181
2025 and thereafter	5657,~~713~~814
Total lease payments	~~176~~172,~~548~~026
Less: Imputed interest	(33,~~208~~150		)
Present value of lease liabilities	$	~~143~~138,~~340~~876

(a) Operating lease payments exclude $816.06 million of legally binding minimum lease payments for leases signed but not yet commenced.

Our future minimum lease commitments as of February 1, 2019, as disclosed in our most recent Annual Report on Form 10-K, represent our undiscounted non-cancelable operating lease arrangements, and ~~has~~have not materially changed since the last Form 10-K filing.

1112


7.	Accrued Expenses

Accrued expenses consist of the following (in thousands):

	August 2, 2019		February 1, 2019
	November 1, 2019		February 1, 2019
Accrued salaries, commissions and benefits	$	3931,~~315~~534	$	45,645
Other	2023,~~945~~015		19,078
Accrued expenses	$	6054,~~260~~549	$	64,723


8.	Fair Value of Financial Assets and Liabilities

Our estimate of fair value for financial assets and financial liabilities is based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. Management determines fair value using the following hierarchy:


•	Level 1—Quoted prices in active markets for identical assets or liabilities.


•	Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


•	Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our cash and cash equivalents of $~~808~~821.49 million and $701.7 million as of ~~August~~November 21, 2019 and February 1, 2019, respectively, are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. Our cash equivalents include money market funds of $~~738~~751.86 million and $614.2 million as of ~~August~~November 21, 2019 and February 1, 2019, respectively.


9.	Debt

WeOn ~~have~~October a22, 2019, we terminated our credit agreement and related security agreement. ~~with~~As ~~Silicon~~part ~~Valley~~of ~~Bank~~the ~~and~~termination, ~~certain~~we ~~other~~accelerated ~~banks.~~the ~~The~~associated ~~senior~~unamortized ~~secured~~debt ~~revolving~~costs, ~~loan~~which ~~facility~~resulted in ~~an aggregate principal amount not to exceed~~ $~~100.~~0.3 million ~~(the~~of ~~“Revolving~~expense ~~Facility”),~~in ~~was~~the ~~amended on May 6, 2019~~period. ~~Borrowings~~Prior ~~under~~to ~~the~~that ~~Revolving~~date, ~~Facility~~we ~~are~~maintained ~~secured~~a bycredit ~~our~~agreement ~~tangible~~and ~~assets.~~related ~~Our~~security ~~borrowing~~agreement ~~capacity~~with ~~under~~Silicon ~~the~~Valley ~~Revolving~~Bank ~~Facility~~and iscertain ~~based~~other ~~on subscription revenue~~banks. The ~~Revolving~~senior ~~Facility~~secured ~~has~~revolving aloan ~~maturity~~facility ~~date~~(the of“Revolving ~~September 8,~~Facility”) ~~2020,~~in ~~unless it is terminated by us or~~ an ~~event~~aggregate ofprincipal ~~default~~amount ~~has~~not ~~occurred prior~~ to ~~such~~exceed ~~date~~$100.0 ~~The~~million, ~~Revolving~~was ~~Facility~~first ~~limits~~entered ~~our~~into ~~and~~on ~~our~~September ~~subsidiaries’ ability to~~8, ~~among~~2017 ~~other things: incur additional indebtedness; incur liens or guarantee obligations; pay dividends or make other distributions; make acquisitions~~ and ~~other~~amended ~~investments;~~on ~~dispose~~May of6, ~~assets;~~2019. ~~and~~Borrowings ~~engage~~under inthe ~~transactions~~Revolving ~~with~~Facility ~~affiliates~~were ~~except~~secured onby anour ~~arms-length~~tangible ~~basis~~assets.

~~Any~~During ~~borrowings under~~ the ~~Revolving~~three ~~Facility~~months ~~may~~ended beMay ~~drawn~~4, ~~at our option~~2018, aswe ~~Eurodollar~~borrowed ~~or Alternate Base Rate (“ABR”) loans~~$15.0 ~~ABR~~million ~~loans~~under ~~bear~~the ~~interest~~Revolving atFacility, awhich ~~rate~~was ~~equal~~in addition to the ~~greatest~~$20.0 ofmillion ~~(i) the~~that ~~prime~~was ~~rate,~~already ~~(ii) the~~outstanding ~~federal~~as ~~funds~~of ~~rate plus 0.50% and (iii)~~February ~~3.00%~~2, in2018, ~~each~~and ~~case~~then ~~plus~~repaid athe ~~margin~~total ~~ranging~~outstanding ~~from~~balance 0%of ~~to 0~~$35.~~50%.~~0 ~~Eurodollar~~million ~~loans~~on ~~bear~~the ~~interest~~Revolving atFacility ain ~~rate~~April 2018. During ~~equal~~the toperiod anfrom ~~adjusted~~April ~~LIBOR~~2018 ~~rate~~to ~~plus~~November 2, a2018, ~~margin~~we ~~ranging~~did ~~from~~not ~~3.00%~~draw todown ~~3.50%. The margins~~ on ~~outstanding~~the ~~borrowings~~Revolving ~~are~~Facility ~~determined~~and ~~based~~no onamounts ~~our~~were ~~average~~outstanding ~~daily~~under ~~usage of~~ the Revolving Facility. InDuring ~~addition,~~the wenine ~~are~~months ~~obligated~~ended toNovember ~~pay~~1, an2019, ~~unused~~we ~~commitment~~did ~~fee~~not ~~and~~draw ~~other~~down ~~fees~~on the Revolving Facility.

We have the option to repay any borrowings under the Revolving Facility prior to maturity without penalty. The Revolving Facility contains customary representations and warranties that require us to comply with certain covenants, including financial covenants relating to our operating performance and liquidity. We were in compliance with these financial covenants as of August 2, 2019.

We may also request, subject to certain conditions, increases in the commitments under the Revolving Facility in an aggregate amount of up to $50.0 million on the same maturity, pricing and other terms applicable to the then-existing commitments under the Revolving Facility. There can be no assurance that such increases will be available.

During the three months ended May 4, 2018, we borrowed $15.0 million under the Revolving Facility, which was in addition to the $20.0 million that was already outstanding as of February 2, 2018, and then repaid the total outstanding balance of $35.0 million on the Revolving Facility in April 2018. During the period from April 2018 to August 3, 2018, we did not draw down on the Revolving Facility and no amounts were outstanding under the Revolving Facility. During the six months ended

August 2, 2019, we did not draw down on the Revolving Facility. As of August 2, 2019, no amounts were outstanding under the Revolving Facility.


10.	Unearned Revenue and Performance Obligations

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period. During the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018 we recognized revenue of $~~125~~124.90 million and $~~104~~103.86 million, respectively, and during the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018 we recognized revenue of $~~230~~319.10 million and $~~176~~249.53 million, respectively, which was included in the corresponding deferred revenue balance at the beginning of the reporting periods presented.

We receive payments from customers based upon contractual billing schedules. Accounts receivable is recorded when the right to consideration becomes unconditional. We generally bill our customers annually in advance, although for our multi-year contracts, some customers prefer to pay the full multi-year contract amount in advance. Payment terms on invoiced amounts are typically 30 to 90 days. Contract assets include amounts related to our contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced; such amounts have been insignificant to date.

Remaining Performance Obligations

The typical contract term for subscription contracts is one to three years, while the contract term for professional services is generally less than one year. Our subscription contracts are non-cancelable over the contractual term. As of ~~August~~November 21, 2019, the aggregate amount of the transaction price allocated to billed and unbilled remaining performance obligations for subscriptions and services for which revenue has not yet been recognized was approximately $~~860~~820 million. We expect to recognize approximately 5560% of the transaction price as subscription or services revenue over the next 12 months and the remainder thereafter. As of February 1, 2019, the aggregate amount of the transaction price allocated to billed and unbilled remaining performance obligations for subscriptions and services for which revenue had not yet been recognized was approximately $990 million.


11.	Income Taxes

As a result of the IPO, we are no longer included in the Dell U.S. federal tax return. Our federal deferred tax assets and liabilities previously calculated on a separate return basis have been adjusted to reflect only the actual carryforward items which Pivotal has on its separate federal tax return. We continue to present on a separate return basis the deferred tax assets and liabilities for those states where we file unitary returns with Dell. A full valuation allowance was recorded against U.S. federal, state and certain foreign deferred tax assets because we determined that it was more likely than not that those deferred tax assets would not be realized. As of ~~August~~November 21, 2019, we have a net deferred tax asset of $0.3 million.

The income tax provision was $0.54 million and $0.48 million for the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively. The income tax provision ~~(benefit)~~ was $1.04 million and $(0.2)5 million for the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively. Our quarterly provision is primarily ~~due~~related to foreign taxes due in profitable jurisdictions.

In April 2019, we amended our Tax Sharing Agreement ("“TSA"”) with Dell with regard to the treatment of certain 2017 Tax Cut and Jobs Act implications not explicitly covered by the original terms of the TSA. ~~The~~As ~~amendment~~a ~~provides~~result ~~that~~of wethe ~~will~~amendment, ~~receive~~Pivotal received a one-time payment of $26.5 million on August 29, 2019 from Dell for the current benefit and estimated future expense related to Pivotal'’s foreign deficits included in the transition tax determination in the Dell Fiscal 2018 federal tax return. ~~Dell's payment to Pivotal was received on August 29, 2019.~~


12.	Common Stock and Stock-Based Awards

As of ~~August~~November 21, 2019, we had 4,000,000,000 shares of Class A common stock authorized, of which 98105,~~632~~538,~~937~~158 shares were issued and outstanding, and 500,000,000 shares of Class B common stock authorized, of which 175,514,272 shares were issued and outstanding. Both Class A common stock and Class B common stock have a par value of $0.01 per share. As of ~~August~~November 21, 2019, we had reserved 2119,~~250~~692,~~069~~191 shares of common stock available for future equity award grants under our equity incentive plans. We also had reserved 5449,~~630~~282,~~192~~849 shares of common stock for future issuance upon exercise of any outstanding stock options and upon vesting of restricted stock units.

Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to ten votes per share.

Stock Options

Stock options generally vest over 48 months as follows: (i) 25% vest 12 months from the date of grant, and (ii) the remaining 75% vest on a monthly basis over the remaining term. The fair value of each stock option granted during fiscal ~~2019~~2020 ~~was~~has been estimated on the date of grant using the Black-Scholes option pricing model.

The following table reflects our stock option activity during the ~~six~~nine months ended ~~August~~November 21, 2019 (in thousands, except weighted-average exercise price):

	Number of SharesSubject to Options		Weighted-AverageExercise Price
Options outstanding at February 1, 2019	45,901		$	8.31
Granted	—		$	—
Exercised	(411,~~973~~250	)	$	7.2353
Forfeited	(12,~~516~~018	)	$	10.1013
Expired / cancelled	(5590	)	$	89.9976
Options outstanding at August 2, 2019	39,357		$	8.38
Options outstanding at November 1, 2019	32,543		$	8.47

As of ~~August~~November 21, 2019, there was $4134.85 million of unrecognized compensation cost related to the unvested options, which is expected to be recognized over the remaining vesting period of the options.

Restricted Stock Units

The Company granted 11.9~~,285,314~~ million and ~~8,653,171~~9.3 million Restricted Stock Units (“RSUs”) with an aggregate fair value of $~~160~~199.58 million and $~~133~~145.27 million during the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively. RSUs awarded under the 2018 Equity Incentive Plan will generally vest over four years. The vesting is contingent on the employees’ continued service through such date. RSUs are generally subject to forfeiture if employment terminates prior to the vesting date. We expense the cost of the RSUs, which is determined to be the fair market value of the shares of common stock underlying the RSUs on the date of grant, ratably over the period during which the vesting restrictions lapse.

The following table reflects our RSU activity during the ~~six~~nine months ended ~~August~~November 21, 2019 (in thousands, except weighted-average grant fair value):

	Number of Restricted Stock Units		Weighted-AverageGrant Fair Value
RSUs outstanding at February 1, 2019	9,501		$	15.77
Granted	911,~~285~~923		$	1716.2876
Vested	(23,~~557~~186	)	$	15.2951
Forfeited	(~~956~~1,428	)	$	16.8780
RSUs outstanding at August 2, 2019	15,273		$	16.69
RSUs outstanding at November 1, 2019	16,810		$	16.43

For the three and ~~six~~nine months ended ~~August~~November 21, 2019, stock-based compensation expense associated with RSUs ~~were~~was $1719.96 million and $2948.28 million, respectively. For three and ~~six~~nine months ended ~~August~~November 32, 2018, stock-based compensation expense associated with RSUs ~~were~~was $8.49 million and $918.87 million, respectively. As of ~~August~~November 21, 2019, there was $~~236~~247.18 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over the remaining vesting period.

Employee Stock Purchase Plan

Our Employee Stock Purchase Plan (the “ESPP”) became effective upon our IPO. The ESPP currently reserves and authorizes the issuance of up to a total of 6,003,420 shares of Class A common stock to participating employees. Eligible employees may elect to participate in the ESPP, upon which the employee authorizes payroll deductions during the offering period in an amount equal to at least 1% of his or her compensation, but not more than the contribution limit. The contribution limit for each offering period is the lesser of (i) 15% of an eligible employee’s compensation for the offering period or (ii) $7,500. Except for the initial offering period, the ESPP provides for 6-month offering periods commencing on January 11 or July 11 and ending on July 10 or January 10 of each year. The current offering period under the ESPP commenced on July 11, 2019 and will end on January 10, 2020. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of our stock on the offering date or (2) the fair market value of our stock on the purchase date. As of ~~August~~November 21, 2019, there were 4,291,613 shares of the Company’s common stock available for future issuance under the ESPP.

14For the three and nine months ended November 1, 2019, stock-based compensation expense associated with the ESPP was $1.0 million and $3.8 million, respectively. For the three and nine months ended November 2, 2018, stock-based compensation expense associated with the ESPP was $0.8 million and $2.0 million, respectively. As of November 1, 2019, there was $1.0 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over the remaining term of the offering period.

For the three and six months ended August 2, 2019, stock-based compensation expense associated with the ESPP were $1.2 million and $2.8 million, respectively. For the three and six months ended August 3, 2018, stock-based compensation expense associated with the ESPP were $1.0 million and $1.2 million, respectively. As of August 2, 2019, there was $2.3 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over the remaining term of the offering period.15

Stock-Based Compensation Expense

The following table summarizes the components of total equity stock-based compensation expense included in our condensed consolidated financial statements for each of the periods presented (in thousands):

Three Months Ended

~~Six~~Nine Months Ended

August 2, 2019

August 3, 2018

August 2, 2019

August 3, 2018

November 1, 2019

November 2, 2018

November 1, 2019

November 2, 2018

Cost of revenue - subscription

~~602~~703

~~411~~404

1,~~108~~811

~~638~~1,042

Cost of revenue - services

5,~~533~~567

4,~~188~~248

1015,~~211~~778

610,~~477~~726

Sales and marketing

7,~~610~~645

5,~~688~~854

1422,~~421~~066

915,~~259~~112

Research and development

78,~~635~~001

5,~~386~~521

1422,~~109~~110

813,~~250~~771

General and administrative

4,~~047~~248

3,~~371~~401

711,~~548~~796

58,~~181~~582

Total stock-based compensation expense

2526,~~427~~164

19,~~044~~428

4773,~~397~~561

2949,~~805~~233

The expense related to awards previously granted by Dell and VMware to certain of our employees was $0.1 million and $0.3 million for ~~both~~ the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively, and was $0.67 million ~~for~~and ~~both~~$0.9 million for the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively.


13.	Net Loss per Share

Basic loss per share is based on the weighted-average effect of all common shares issued and outstanding and is calculated by dividing net loss attributable to common stockholders by the weighted-average shares outstanding during the period.

The following table sets forth basic and diluted earnings (loss) per share for each of the periods presented (in thousands, except per share amounts):

	Three Months Ended						~~Six~~Nine Months Ended
	August 2, 2019			August 3, 2018			August 2, 2019			August 3, 2018
	November 1, 2019			November 2, 2018			November 1, 2019			November 2, 2018
Numerator:
Net loss attributable to common stockholders	$	(2833,~~115~~103	)	$	(3534,~~607~~850	)	$	(5992,~~852~~955	)	$	(68102,~~122~~972	)
Denominator:
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted	~~272~~277,~~724~~567			~~257~~258,~~240~~408			~~270~~272,~~619~~935			~~181~~207,~~404~~072
Net loss per share attributable to common stockholders, basic and diluted	$	(0.1012	)	$	(0.1413	)	$	(0.2234	)	$	(0.3850	)

Since we were in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.

Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands):

	August 2, 2019	August 3, 2018
	November 1, 2019	November 2, 2018
Shares subject to outstanding common stock options	3932,~~357~~543	5448,~~467~~966
Unvested RSUs outstanding	1516,~~273~~810	89,~~597~~120
Shares committed under the ESPP	1,090	~~801~~752
Total	5550,~~720~~443	6358,~~865~~838

1516


14.	Related Party Transactions

Dell and VMware Agency Arrangements

Since our formation, we have entered into agency arrangements with Dell and VMware that enable our sales team to sell our subscriptions and services leveraging the Dell and VMware enterprise relationships and end customer contracts. These transactions result in Dell or VMware invoicing customers and collecting on our behalf. In exchange, we pay an agency fee, which is based on a percentage of the invoiced contract amounts, for their services. Such percentage ranged from 1.5% to 5.0% for both the three and ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively.

In aggregate, we paid Dell and VMware $1.78 million and $2.1.7 million for the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively, and $35.20 million and $5.7.5 million for the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively, which was deferred and amortized to sales and marketing expense over the term of the underlying customer arrangements.

Sales of our Products and Services to Dell and VMware

From time to time, we have sold our software products and professional, software support and other services to Dell and VMware for their internal use. Revenue recognized for sales of our products and services to Dell was $64.18 million and $3.13 million for the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively, and $1217.21 million and $610.81 million for the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively. Revenue recognized for sales of our products and services to VMware was $0.3 million ~~for~~and ~~both~~$0.5 million for the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively, and $0.69 million and $01.83 million for the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively.

Dell and VMware Transition Services and Employee Matters Agreements

We engage Dell in several ongoing related party transactions which result in costs charged to us. Dell acts as a paying agent for certain international payroll, accounts payable and other expenses.

Pursuant to ongoing shared services and employee matters agreements, we are charged by Dell for certain administrative services, including certain financial services as well as support services where Pivotal does not have a legal entity, based upon estimates and allocations. Additionally, in certain geographic regions where we do not have an established legal entity, we contract with Dell subsidiaries for support services. We are charged for overhead items such as facilities and IT systems for our employees that work from Dell office locations. The costs incurred by Dell on our behalf related to these employees are charged to us with a markup. These costs are included as expenses in our consolidated statements of operations and primarily include salaries, benefits, travel and facility costs.

These expenses are charged to us on the basis of direct usage when identifiable, with the remainder charged primarily on the basis of headcount or other measures. Management believes the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented.

Charges received from Dell for the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018 were $611.25 million and $75.63 million, respectively, and were $1527.50 million and $1621.25 million for the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively.

Dell Tax Sharing Agreement

Pursuant to a tax sharing agreement Pivotal has historically received payments from Dell for the tax benefits derived from the inclusion of our losses in certain Dell U.S. federal and state group returns. As of a result of stock issued during our IPO, Pivotal no longer qualifies for inclusion in the Dell U.S. federal consolidated tax return. This reduces the amount of benefit or expense we receive from the tax sharing agreement in prospective periods to the benefit or expense that Dell realizes from our inclusion in their unitary state returns.

In April 2019, we amended our ~~Tax Sharing Agreement ("~~TSA") with Dell with regard to the treatment of certain 2017 Tax Cut and Jobs Act implications not explicitly covered by the original terms of the TSA. The amendment ~~provides~~provided that we ~~will~~would receive a one-time payment of $26.5 million from Dell for the current benefit and estimated future expense related to Pivotal'’s foreign deficits included in the transition tax determination in the Dell ~~Fiscal~~fiscal 2018 federal tax return. Dell'’s payment to Pivotal was received in August 2019.

As of ~~August~~November 21, 2019, the ~~tax~~net ~~sharing~~payable ~~agreement~~related ~~receivable~~to ofthe TSA with Dell was $271.38 million. ~~was~~The ~~included~~balance inis comprised primarily of a return-to-provision update of $2.6 million related to the ~~due~~finalization ~~from~~of ~~Parent~~our ~~and~~fiscal ~~additional~~2019 ~~paid~~federal intaxable ~~capital~~income, ~~financial~~partially ~~statement~~offset ~~lines~~by ina ~~the~~provision ~~condensed~~for ~~consolidated~~state ~~balance~~receivables ~~sheet~~which are not yet final.

1617

Other Related Party Transactions

Through September 6, 2018, certain of our directors were also executives of companies that are our customers. Subsequent to this date, only the director from Ford ~~Motor Company ("Ford")~~ remains an executive of a company that is our customer.

Revenue recognized from sales of subscriptions and services to Ford was $12.80 million and $32.35 million for the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively, and $35.65 million and $6.9.4 million for the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, respectively. We had outstanding accounts receivable balances from Ford of $011.85 million and $1.8 million as of ~~August~~November 21, 2019 and February 1, 2019, respectively.

Revenue recognized from sales of subscriptions and services to General Electric ("“GE"”) was $20.9 million and $56.98 million for the three and ~~six~~ nine months ended ~~August~~November 32, 2018, respectively. As GE is no longer a related party, no disclosures for fiscal 2020 have been provided.

~~See~~Proposed ~~also "Note 17 --- Subsequent Events" for details of the~~ Merger ~~Agreement entered into~~ with VMware ~~on August 22, 2019.~~

On August 22, 2019, Pivotal entered into the Merger Agreement with VMware and Merger Sub. Refer to “

Note 1 --- Overview and Basis of Presentation” for details of the Merger Agreement.


15.	Commitments and Contingencies

Litigation

~~Beginning~~Between on June 14, 2019 and June 27, 2019, six complaints were filed against us in state and federal court in San Francisco alleging violations of securities laws in connection with disclosures made in connection with our IPO and thereafter. The plaintiffs in those cases are seeking to have the cases certified as class actions, and also seek damages and legal fees. At this time, it is not reasonably possible to determine the ultimate resolution of, or estimate the liability related to, these matters.

As of the filing of this report, Pivotal is aware of six complaints related to the Merger Agreement having been filed: Briant v. Pivotal Software, Inc., No. 1:19-cv-09479 (S.D.N.Y. Oct. 14, 2019); Plumley v. Pivotal Software, Inc., No. 1:19-cv-01974 (D. Del. Oct. 17, 2019); Shan v. Pivotal Software, Inc., No. 3:19-cv-06814 (N.D. Cal. Oct. 21, 2019); Silverberg v. Pivotal Software, Inc., No. 3:19-cv-06977 (N.D. Cal. Oct. 24, 2019); Rothman v. Pivotal Software, Inc., No. 3:19-cv-07066 (N.D. Cal. Oct. 28, 2019); and Parada v. Pivotal Software, Inc., No. 1:19-cv-06306 (E.D.N.Y. Nov. 7, 2019). The complaints are brought by putative stockholders against Pivotal and members of our board of directors and the Pivotal Special Committee. The Shan complaint also names VMware and Merger Sub as defendants. Among other things, the complaints allege that the disclosures in our proxy statement filings violate the Exchange Act and the rules and regulations promulgated thereunder. In addition, the Shan complaint alleges that members of our board of directors breached their fiduciary duties in connection with the board of director’s approval of the Merger Agreement. The plaintiffs in these cases seek various forms of relief, including unspecified monetary damages, legal fees, and injunctive relief enjoining consummation of the Merger. The plaintiffs in all actions other than Briant and Parada seek to have their cases certified as class actions.

The defendants, including Pivotal and the members of the Pivotal Special Committee and our board of directors, believe that the claims asserted in these lawsuits are without merit. Nevertheless, the outcomes of these lawsuits are uncertain and cannot be predicted with any certainty.

Stockholders have delivered two demand letters to our board of directors under Section 220 of the Delaware General Corporation Law for various books and records related to the Merger Agreement. We are committed to cooperating with our stockholders in responding to reasonable records requests that comply with applicable law.

In addition, from time to time, we are involved in legal proceedings and subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the resolution of these ordinary course matters will not have a material adverse effect on our business, operating results, financial condition or cash flows. Even if any particular litigation is not resolved in a manner that is adverse to our interests, such litigation can have a negative impact on us because of defense and settlement costs, diversion of management resources from our business and other factors.

Warranties and Indemnification

Our software is generally warranted to perform substantially in accordance with the subscription agreement. Our contracts generally include provisions for indemnifying customers against liabilities if our services infringe or misappropriate a third party’s intellectual property rights. Costs and liabilities incurred as a result of warranties and indemnification obligations were not material during the periods presented and no liability has been recognized relating to these obligations.

intellectual property rights. Costs and liabilities incurred as a result of warranties and indemnification obligations were not material during the periods presented and no liability has been recognized relating to these obligations.


16.	Segment and Geographic Information

The following table summarizes revenue by geography based on the sold-to location of our customers that purchase subscriptions and services (in thousands):

	Three Months Ended								~~Six~~Nine Months Ended
	August 2, 2019				August 3, 2018				August 2, 2019				August 3, 2018
	November 1, 2019				November 2, 2018				November 1, 2019				November 2, 2018
	Amount		Percentage ofRevenue		Amount		Percentage ofRevenue		Amount		Percentage ofRevenue		Amount		Percentage ofRevenue
United States	$	~~145~~148,~~646~~710	75	%	$	~~128~~129,~~096~~867	7877	%	$	~~289~~438,~~457~~167	76	%	$	~~247~~377,~~752~~619	77	%
International	4749,~~350~~569		25	%	3638,~~312~~276		2223	%	89138,~~254~~823		24	%	72110,~~391~~667		23	%
Total	$	~~192~~198,~~996~~279	100	%	$	~~164~~168,~~408~~143	100	%	$	~~378~~576,~~711~~990	100	%	$	~~320~~488,~~143~~286	100	%

1719

17. Subsequent Events

On August 22, 2019, Pivotal entered into the Merger Agreement with VMware and Raven Transaction Sub, Inc., a wholly owned subsidiary of VMware ("Merger Sub"). The Merger Agreement provides that, subject to certain terms and conditions, Merger Sub will merge with and into Pivotal (the "Merger"), with Pivotal surviving the Merger and becoming a wholly owned subsidiary of VMware.

Pivotal and VMware are both majority-owned subsidiaries of Dell. Based on the amount of outstanding capital stock reported in this report on Form 10-Q, VMware owns approximately 16.1% of Pivotal’s outstanding common stock, consisting entirely of shares of Pivotal’s Class B common stock, par value $0.01. Dell indirectly through VMware and through EMC Equity Assets LLC, a Delaware limited liability company ("EMC"), beneficially owns 100% of the outstanding shares of the Class B common stock, representing approximately 64.0% of Pivotal’s outstanding common stock.

The Merger and the Merger Agreement have been approved by the board of directors of each of VMware (acting upon the unanimous recommendation of a special committee of the board of directors of VMware, consisting solely of independent and disinterested directors, authorized to, among other things, negotiate, evaluate and approve or disapprove potential transactions with Pivotal) and Pivotal (acting upon the unanimous recommendation of a special committee of the board of directors of Pivotal, consisting solely of independent and disinterested directors authorized to, among other things, negotiate, evaluate and approve or disapprove a potential transaction with VMware).

Concurrently with the execution of the Merger Agreement, Ford entered into a voting agreement pursuant to which Ford has agreed, among other things and subject to the terms and conditions set forth therein, to vote its shares of the Class A common stock in favor of the adoption of the Merger Agreement and the transactions contemplated thereby, including the Merger.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. All statements contained in this report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “seek,” “plan,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” section. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied by the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activities, performance, or achievements. We are under no duty to update any of these forward-looking statements after the date of this report or to conform these statements to actual results or revised expectations.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties; our future results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q and Part I, item 1A in our Annual Report on Form 10-K. Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31.

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 and transportation, industrial and business services, financial services, healthcare and insurance, technology and media, consumer and communications and government sectors.

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

•

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 delivered continuously 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.

We generate a substantial and increasing portion of our revenue from the sale of PCF subscriptions generated from sales of products to handle customers’ differing workloads and needs, including Pivotal Application Service (“PAS”), Pivotal Container Service (“PKS”) and products accessed in our Pivotal Services Marketplace. We generate subscription revenue primarily from the sale of time-based subscriptions. Subscriptions are offered typically for one- to three-year terms, and we continue to recognize revenue from our subscriptions ratably over the subscription term. We expect that over time subscription revenue will become a larger percentage of our total revenue as customers continue to adopt and expand their PCF subscriptions and as our systems integrator (“SI”) partner relationships ramp to directly deliver Labs-like services to our customers.

We offer strategic services including Labs, implementation and other services. Labs involves co-development and application transformation services. We offer implementation services to enable our customers to configure, deploy, test, launch and operate PCF. Part of our strategy to scale our subscription revenue is to rely, in part, on SI partners to deliver co-development, application transformation and implementation services to our customers. We intend to grow our services revenue at a slower rate than our subscription revenue as customers are enabled on our platform and increasingly use our partner ecosystem for their services needs. Our strategic services are typically priced on a time and materials basis with revenue recognized upon the delivery of the services.

We remain focused on attracting new subscription customers, retaining our customers and expanding their usage of our platform, and leveraging strategic services, delivered by us and our partners, to accelerate our customers’ pace of innovation and use of PCF. This focus has resulted in rapid growth of our subscription revenue and significant total revenue growth in recent periods.

To realize this rapid growth, we have made and expect to continue to make substantial investments across our business. Specifically, we have increased our total employee base over time, and we intend to continue to invest in our business to take advantage of our market opportunity and to expand our sales capacity and further improve sales productivity to drive additional revenue and grow our global customer base. Additionally, we continue to invest in the development and expansion of our partner ecosystem to supplement our sales and services resources and increase our reach in our target markets. We also expect to continue to make significant investments in research and development to expand our product and engineering teams to further develop our platform. We expect to incur increased general and administrative expenses to support our growth and operations.

OnProposed ~~August 22, 2019, Pivotal entered into an Agreement Plan of~~ Merger with VMware ~~and Raven Acquisition Sub, Inc. (the "Merger Agreement"). See "Note 17 --- Subsequent Events" for additional information.~~

On August 22, 2019, Pivotal entered into the Merger Agreement with VMware and Merger Sub. Refer to “Note 1 --- Overview and Basis of Presentation” for details of the Merger Agreement.

Key Metrics

We regularly review the following key metrics to measure performance, identify trends, formulate financial projections and to help us monitor our business. While we believe that these metrics are useful in evaluating our business, other companies may not use similar metrics or may not calculate similarly- titled metrics in a consistent manner.

	August 2, 2019		February 1, 2019		August 3, 2018
	November 1, 2019		February 1, 2019		November 2, 2018
Subscription customers	~~397~~412		377		~~354~~368
Dollar-based net expansion	~~139~~135	%	149	%	150	%

Subscription Customers

We believe that the number of our subscription customers is an important indicator of the growth of our business, our increased customer footprint and the market acceptance of our platform. We define the number of subscription customers as the organizations that have a subscription contract for our software resulting in at least $50,000 of annual revenue in that period. While we may enter into subscription agreements with multiple parties inside a larger organization, we count a customer as an addition to our subscription customers only if it represents a unique global ultimate parent. In the case of the U.S. government, we count U.S. government departments and major agencies as unique subscription customers. We view our total number of subscription customers as reflective of the number of sources of revenue to us and our growth and potential for future growth.

We had 397, 377 and 354 subscription customers as of August 2, 2019, February 1, 2019, and August 3, 2018, respectively. We expect growth in subscription customers to continue as we deliver enhancements to our products and remain focused on 21

20We had 412, 377 and 368 subscription customers as of November 1, 2019, February 1, 2019, and November 2, 2018, respectively. We expect growth in subscription customers to continue as we deliver enhancements to our products and remain focused on increasing our subscription customer count. Our total number of subscription customers and the net additions in any period may continue to fluctuate as a result of several factors, including the focus of our sales force, customer satisfaction with the functionality, features, performance or pricing of our offering, consolidation of our customer base and other factors, a number of which are beyond our control.

increasing our subscription customer count. Our total number of subscription customers and the net additions in any period may continue to fluctuate as a result of several factors, including the focus of our sales force, customer satisfaction with the functionality, features, performance or pricing of our offering, consolidation of our customer base and other factors, a number of which are beyond our control.

Dollar-Based Net Expansion Rate

We believe that the dollar-based net expansion rate is an important measure of our business because it is an indicator of our subscription customers’ expanded use of and demand for our platform and our ability to grow revenue and profitability. Our dollar-based net expansion rate compares our subscription revenue from a common group of customers across comparable periods. We calculate our dollar-based net expansion rate for all periods on a trailing four-quarter basis. To do so, we calculate our dollar-based net expansion rate as of each quarter end by starting with the subscription revenue from customers as of the prior year’s same quarter (the “Prior Period Subscription Revenue”). We then calculate subscription revenue from these same customers as of the current quarter end (the “Current Period Subscription Revenue”). Finally, to assess net expansion level for common groups of customers over time, we divide the aggregate Current Period Subscription Revenue for the trailing four quarters by the aggregate Prior Period Subscription Revenue for the trailing four quarters, resulting in our dollar-based expansion rate.

We expect our dollar-based net expansion rate to remain a significant indicator of our business momentum and results of operations as existing customers realize the benefits of our software and expand their PCF subscriptions. Our dollar-based net expansion rate has fluctuated and we expect it to continue to fluctuate and trend downward over time as we scale our business and as a result of several factors, including the size of the transactions, the timing and terms of the deals and our customers’ satisfaction with our offering. Our dollar-based net expansion rate was approximately ~~139~~135% for the three months ended ~~August~~November 21, 2019, 149% for the three months ended February 1, 2019 and 150% for the three months ended ~~August~~November 32, 2018.

Components of Results of Operations

Revenue

Subscription

Subscription revenue is primarily derived from sales of PCF subscriptions. Our customers subscribe to use our software platform for a variety of workloads, such as applications, containers or other microservices. Subscriptions are offered typically for one- to three-year terms, and we recognize revenue from our subscriptions ratably over the subscriptions’ term. We generally bill our customers annually in advance, although for our multi-year contracts, some customers pay the full contract amount in advance.

To a lesser extent, we generate revenue from certain historical software products sold on a perpetual license basis. Perpetual license revenue represented less than 1% of our total revenue for the both the three and ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018. We expect the percentage of perpetual license revenue to continue to decline as a percentage of total revenue. We generally recognize revenue from our perpetual licenses upon delivery, assuming all the other revenue recognition criteria are satisfied.

Services

Services revenue is primarily derived from Labs, as well as implementation and other professional services. To a decreasing extent over time, services revenue also includes revenue from maintenance and support associated with the perpetual licenses described above. Our services revenue may continue to fluctuate; any services revenue growth is expected to be modest both in absolute dollars and relative to subscription revenue.

Cost of Revenue

Subscription

Cost of subscription revenue consists primarily of personnel and related costs, consisting of salaries, benefits, bonuses and stock-based compensation (“personnel costs”) directly associated with our customer support and allocated overhead costs. Additionally, cost of subscription revenue includes intangible asset and other asset amortization expense and certain third-party expenses such as cloud infrastructure costs and software and support fees. We expect our cost of subscription revenue to increase in absolute dollar amounts as we invest in our business.

2122

Services

Cost of services revenue consists primarily of personnel costs directly associated with delivery of Labs, implementation and other professional services, costs of third-party contractors and allocated overhead costs. We expect our cost of services revenue to increase in absolute dollar amounts as we invest in our business.

Operating Expenses

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs including commissions. Other sales and marketing costs include travel and entertainment, promotional events (such as our SpringOne Platform Conference) and allocated overhead costs. We expect our sales and marketing expenses will increase in absolute dollar amounts as we hire additional sales and marketing personnel to expand our customer footprint, deepen our relationships with existing customers, and build brand and product awareness.

Research and Development

Research and development expenses consist primarily of personnel costs, cloud infrastructure costs related to our research and development efforts and allocated overhead costs. We expect our research and development expenses will increase in absolute dollar amounts as we expand our research and development team to develop new products and product enhancements.

General and Administrative

General and administrative expenses consist primarily of personnel costs and allocated overhead costs for our administrative, legal, information technology, human resources, finance and accounting employees and executives. Our general and administrative expenses also include professional fees, audit fees, tax services and legal fees, as well as insurance and other corporate expenses. We expect our general and administrative expenses will increase in absolute dollar amounts as we scale our general and administrative function to support the growth of our business. We also anticipate that we will incur additional costs for employees and third-party consulting services as we continue to operate as a public company.

Other Income (expense), Net

Other income (expense), net consists of gains and losses from transactions denominated in a currency other than the functional currency, net interest earned on our cash and cash equivalents and other non-operating gains or losses.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal, state and certain foreign deferred tax assets as we have concluded that it is more likely than not that those deferred assets will not be utilized.

Results of Operations (dollars in thousands)

	Three Months Ended						Six Months Ended
	August 2, 2019			August 3, 2018			August 2, 2019			August 3, 2018
Revenue:
Subscription	$	134,990		$	97,494		$	263,846		$	187,615
Services	58,006			66,914			114,865			132,528
Total revenue	192,996			164,408			378,711			320,143
Cost of revenue:
Subscription	9,108			8,105			17,664			16,234
Services	51,417			53,129			103,463			104,291
Total cost of revenue	60,525			61,234			121,127			120,525
Gross profit	132,471			103,174			257,584			199,618
Operating expenses:
Sales and marketing	82,639			70,550			164,260			139,688
Research and development	58,676			47,001			114,931			91,429
General and administrative	22,557			21,025			44,702			37,433
Total operating expenses	163,872			138,576			323,893			268,550
Loss from operations	(31,401		)	(35,402		)	(66,309		)	(68,932		)
Other income, net	3,820			237			7,420			546
Loss before provision for (benefit from) income taxes	(27,581		)	(35,165		)	(58,889		)	(68,386		)
Provision for (benefit from) income taxes	525			437			1,000			(227		)
Net loss	(28,106		)	(35,602		)	(59,889		)	(68,159		)
Less: Net loss (income) attributable to non-controlling interest	(9		)	(5		)	37			37
Net loss attributable to Pivotal	$	(28,115	)	$	(35,607	)	$	(59,852	)	$	(68,122	)

Results of Operations (dollars in thousands)



	Three Months Ended						Nine Months Ended
	November 1, 2019			November 2, 2018			November 1, 2019			November 2, 2018
Revenue:
Subscription	$	139,758		$	100,775		$	403,604		$	288,390
Services	58,521			67,368			173,386			199,896
Total revenue	198,279			168,143			576,990			488,286
Cost of revenue:
Subscription	9,649			7,813			27,313			24,047
Services	51,292			53,179			154,755			157,470
Total cost of revenue	60,941			60,992			182,068			181,517
Gross profit	137,338			107,151			394,922			306,769
Operating expenses:
Sales and marketing	83,198			70,620			247,458			210,308
Research and development	58,832			51,880			173,763			143,309
General and administrative	30,640			20,546			75,342			57,979
Total operating expenses	172,670			143,046			496,563			411,596
Loss from operations	(35,332		)	(35,895		)	(101,641		)	(104,827		)
Other income, net	2,634			1,866			10,054			2,412
Loss before provision for income taxes	(32,698		)	(34,029		)	(91,587		)	(102,415		)
Provision for income taxes	409			776			1,409			549
Net loss	(33,107		)	(34,805		)	(92,996		)	(102,964		)
Less: Net loss (income) attributable to non-controlling interest	4			(45		)	41			(8		)
Net loss attributable to Pivotal	$	(33,103	)	$	(34,850	)	$	(92,955	)	$	(102,972	)

The following table sets forth our results of operations for each of the periods presented as a percentage of revenue:

	Three Months Ended				~~Six~~Nine Months Ended
	August 2, 2019		August 3, 2018		August 2, 2019		August 3, 2018
	November 1, 2019		November 2, 2018		November 1, 2019		November 2, 2018
Revenue:
Subscription	70	%	5960	%	70	%	59	%
Services	30		4140		30		41
Total revenue	100		100		100		100
Cost of revenue:
Subscription	45		5		5		5
Services	2726		3231		27		3332
Total cost of revenue	31		3736		32		3837
Gross profit	69		6364		68		6263
Operating expenses:			.
Sales and marketing	4342		4342		43		4443
Research and development	30		2831		30		2829
General and administrative	1215		1412		13		1213
Total operating expenses	8587		85		86		8485
Loss from operations	(1618	)	(2221	)	(18	)	(22	)
Other income, net	21		01		2		1
Loss before provision for (benefit from) income taxes	(14	)	(22	)	(16	)	(21	)
Loss before provision for income taxes	(17	)	(20	)	(16	)	(21	)
Provision for (benefit from) income taxes	1		0		0		0
Provision for income taxes	—		1		0		0
Net loss	(1517	)	(2221	)	(16	)	(21	)
Less: Net loss (income) attributable to non-controlling interest	0		0		0		0
Net loss attributable to Pivotal	(1517	)%	(2221	)%	(16	)%	(21	)%

Comparison of the three and ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018

Revenue

Three Months Ended

~~Six~~Nine Months Ended

August 2, 2019

August 3, 2018

August 2, 2019

August 3, 2018

November 1, 2019

November 2, 2018

November 1, 2019

November 2, 2018

Amount

$ Change

% Change

Amount

$ Change

% Change

(dollars in thousands)

Revenue:

Subscription

~~134~~139,~~990~~758

97100,~~494~~775

3738,~~496~~983

3839%

~~263~~403,~~846~~604

~~187~~288,~~615~~390

76115,~~231~~214

4140%

Services

58,~~006~~521

6667,~~914~~368

(8,~~908~~847

)

(13)%

~~114~~173,~~865~~386

~~132~~199,~~528~~896

(1726,~~663~~510

)

(13)%

Total revenue

~~192~~198,~~996~~279

~~164~~168,~~408~~143

2830,~~588~~136

1718%

~~378~~576,~~711~~990

~~320~~488,~~143~~286

5888,~~568~~704

18%

Total revenue increased by $2830.61 million, or 1718%, to $~~193~~198.03 million during the three months ended ~~August~~November 21, 2019, from $~~164~~168.41 million during the three months ended ~~August~~November 32, 2018. Subscription revenue increased by $3739.50 million, or 3839%, to $~~135~~139.08 million during the three months ended ~~August~~November 21, 2019 from $97100.58 million during the three months ended ~~August~~November 32, 2018. The increase in subscription revenue was primarily due to increased sales to existing customers and the remaining increase was due to sales to new customers. Services revenue decreased by $8.98 million, or 13%, to $58.05 million during the three months ended ~~August~~November 21, 2019 from $6667.94 million during the three months ended ~~August~~November 32, 2018. The decrease in services revenue was due to fewer customer engagements within the current period and a decrease in revenue from maintenance and support contracts. Revenue from maintenance and support contracts associated with historical software products sold on a perpetual license basis represented less than 35% of total revenue for both the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018, and is generally expected to represent a decreasing amount of revenue in future periods.

Total revenue increased by $58.6 million, or 18%, to $378.7 million during the six months ended August 2, 2019, from $320.1 million during the six months ended August 3, 2018. Subscription revenue increased by $76.2 million, or 41%, to $263.8 million during the six months ended August 2, 2019 from $187.6 million during the six months ended August 3, 2018. The increase in subscription revenue was primarily due to increased sales to existing customers and the remaining increase was due to sales to new customers. Services revenue decreased by $17.7 million, or 13%, to $114.9 million during the six months ended August 2, 2019 from $132.5 million during the six months ended August 3, 2018. The decrease in services revenue was due to fewer customer engagements within the current period. Revenue from maintenance and support contracts associated with historical software products sold on a perpetual license basis represented less than 3% of total revenue for both the six months ended August 2, 2019 and August 3, 2018, and is generally expected to represent a decreasing amount of revenue in future periods.

Cost of Revenue

	Three Months Ended										Six Months Ended
	August 2, 2019			August 3, 2018							August 2, 2019			August 3, 2018
	Amount			Amount			$ Change			% Change	Amount			Amount			$ Change			% Change
	(dollars in thousands)										(dollars in thousands)
Cost of revenue:
Subscription	$	9,108		$	8,105		$	1,003		12%	$	17,664		$	16,234		$	1,430		9%
Services	51,417			53,129			(1,712		)	(3)%	103,463			104,291			(828		)	(1)%
Total cost of revenue	$	60,525		$	61,234		$	(709	)	(1)%	$	121,127		$	120,525		$	602		—%
Gross margin:
Subscription	93		%	92		%					93		%	91		%
Services	11		%	21		%					10		%	21		%
Total gross margin	69		%	63		%					68		%	62		%

Total cost of revenue decreased slightly during the three months ended August 2, 2019 from as compared to the three months ended August 3, 2018. Cost of subscription revenue increased by $1.0 million, or 12%, to $9.1 million during the three months ended August 2, 2019 from $8.1 million during the three months ended August 3, 2018. The increase in cost of subscription was due to an increase in personnel costs of $1.0 million. Growth in cost of subscription revenue was lower relative to the growth in our overall customer base and subscription revenue growth as we continue to realize economies of scale. The cost of services revenue decreased by $1.7 million, or 3%, to $51.4 million during the three months ended August 2, 2019 from $53.1 million during the three months ended August 3, 2018. The decrease in services expense was primarily due to a decrease in personnel costs of $2.1 million, offset by an increase of $0.7 million in third party labor costs.

Total cost of revenue increased by $0.6 million, or 0%, to $121.1 million during the six months ended August 2, 2019 from $120.5 million during the six months ended August 3, 2018. Cost of subscription revenue increased by $1.4 million, or 9%, to $17.7 million during the six months ended August 2, 2019 from $16.2 million during the six months ended August 3, 2018. The increase in cost of subscription was driven by higher support personnel costs of $2.0 million, offset by a reduction in intangible asset amortization of $0.7 million. The cost of services revenue decreased by $0.8 million, or 1%, to $103.5 million during the six months ended August 2, 2019 from $104.3 million during the six months ended August 3, 2018. The decrease in services expense was primarily due to a decrease of $0.4 million in third party labor costs.

Subscription gross margin increased to 93% during the three months ended August 2, 2019 from 92% during the three months ended August 3, 2018 due to economies of scale as our subscription revenue increased.

Subscription gross margin increased to 93% during the six months ended August 2, 2019 from 91% during the six months ended August 3, 2018 due to economies of scale as our subscription revenue increased.

Services gross margin decreased to 11% during the three months ended August 2, 2019 from 21% during the three months ended August 3, 2018 driven by fewer customer engagements and decline in higher margin maintenance revenues that support legacy perpetual licenses.

Services gross margin decreased to 10% during the six months ended August 2, 2019 from 21% during the six months ended August 3, 2018 driven by fewer customer engagements and decline in higher margin maintenance revenues that support legacy perpetual licenses.

Total revenue increased by $88.7 million, or 18%, to $577.0 million during the nine months ended November 1, 2019, from $488.3 million during the nine months ended November 2, 2018. Subscription revenue increased by $115.2 million, or 40%, to $403.6 million during the nine months ended November 1, 2019 from $288.4 million during the nine months ended November 2, 2018. The increase in subscription revenue was primarily due to increased sales to existing customers and the remaining increase was due to sales to new customers. Services revenue decreased by $26.5 million, or 13%, to $173.4 million during the nine months ended November 1, 2019 from $199.9 million during the nine months ended November 2, 2018. The decrease in services revenue was due to fewer customer engagements within the current period and a decrease in revenue from maintenance and support contracts. Revenue from maintenance and support contracts associated with historical software products sold on a perpetual license basis represented less than 4% of total revenue for both the nine months ended November 1, 2019 and November 2, 2018, and is generally expected to represent a decreasing amount of revenue in future periods.

Cost of Revenue



	Three Months Ended										Nine Months Ended
	November 1, 2019			November 2, 2018							November 1, 2019			November 2, 2018
	Amount			Amount			$ Change			% Change	Amount			Amount			$ Change			% Change
	(dollars in thousands)										(dollars in thousands)
Cost of revenue:
Subscription	$	9,649		$	7,813		$	1,836		23%	$	27,313		$	24,047		$	3,266		14%
Services	51,292			53,179			(1,887		)	(4)%	154,755			157,470			(2,715		)	(2)%
Total cost of revenue	$	60,941		$	60,992		$	(51	)	—%	$	182,068		$	181,517		$	551		—%
Gross margin:
Subscription	93		%	92		%					93		%	92		%
Services	12		%	21		%					11		%	21		%
Total gross margin	69		%	64		%					68		%	63		%

Total cost of revenue decreased slightly during the three months ended November 1, 2019 from the three months ended November 2, 2018. Cost of subscription revenue increased by $1.8 million, or 23%, to $9.6 million during the three months ended November 1, 2019 from $7.8 million during the three months ended November 2, 2018. The increase in cost of subscription was primarily due to an increase in personnel and third-party labor costs of $1.9 million. Growth in cost of subscription revenue was lower relative to the growth in our subscription revenue as we continue to realize economies of scale. Cost of services revenue decreased by $1.9 million, or 4%, to $51.3 million during the three months ended November 1, 2019 from $53.2 million during the three months ended November 2, 2018. The decrease in costs of services expense was primarily due to a decrease in personnel and related costs of $3.0 million driven by less services revenue, offset by an increase in third-party partner spend.

Total cost of revenue increased by $0.6 million, or 0%, to $182.1 million during the nine months ended November 1, 2019 from $181.5 million during the nine months ended November 2, 2018. Cost of subscription revenue increased by $3.3 million, or 14%, to $27.3 million during the nine months ended November 1, 2019 from $24.0 million during the nine months ended November 2, 2018. The increase in cost of subscription was driven by higher support personnel and related costs of $4.5 million, due to the growth of our subscription revenue, offset by a reduction in intangible asset amortization of $1.1 million. The cost of services revenue decreased by $2.7 million, or 2%, to $154.8 million during the nine months ended November 1, 2019 from $157.5 million during the nine months ended November 2, 2018. The decrease in cost of services expense was primarily due to a decrease of $3.3 million in personnel and related costs driven by less services revenue, offset by an increase in third-party partner spend.

Subscription gross margin increased to 93% during the three months ended November 1, 2019 from 92% during the three months ended November 2, 2018 due to economies of scale as our subscription revenue increased.

Subscription gross margin increased to 93% during the nine months ended November 1, 2019 from 92% during the nine months ended November 2, 2018 due to economies of scale as our subscription revenue increased.

Services gross margin decreased to 12% during the three months ended November 1, 2019 from 21% during the three months ended November 2, 2018 driven by fewer customer engagements and decline in higher margin maintenance revenues that support legacy perpetual licenses.

Services gross margin decreased to 11% during the nine months ended November 1, 2019 from 21% during the nine months ended November 2, 2018 driven by fewer customer engagements and decline in higher margin maintenance revenues that support legacy perpetual licenses.

Operating Expenses

Sales and Marketing

Three Months Ended

~~Six~~Nine Months Ended

August 2, 2019

August 3, 2018

August 2, 2019

August 3, 2018

November 1, 2019

November 2, 2018

November 1, 2019

November 2, 2018

Amount

$ Change

% Change

Amount

$ Change

% Change

(dollars in thousands)

Sales and marketing

8283,~~639~~198

70,~~550~~620

12,~~089~~578

1718%

~~164~~247,~~260~~458

~~139~~210,~~688~~308

2437,~~572~~150

18%

Percentage of revenue

4342

4443

Research and Development

Three Months Ended

~~Six~~Nine Months Ended

August 2, 2019

August 3, 2018

August 2, 2019

August 3, 2018

November 1, 2019

November 2, 2018

November 1, 2019

November 2, 2018

Amount

$ Change

% Change

Amount

$ Change

% Change

(dollars in thousands)

Research and development

58,~~676~~832

4751,~~001~~880

116,~~675~~952

2513%

~~114~~173,~~931~~763

91143,~~429~~309

2330,~~502~~454

2621%

Percentage of revenue

2831

2829

General and Administrative

Three Months Ended

~~Six~~Nine Months Ended

August 2, 2019

August 3, 2018

August 2, 2019

August 3, 2018

November 1, 2019

November 2, 2018

November 1, 2019

November 2, 2018

Amount

$ Change

% Change

Amount

$ Change

% Change

(dollars in thousands)

General and administrative

2230,~~557~~640

2120,~~025~~546

110,~~532~~094

749%

4475,~~702~~342

3757,~~433~~979

717,~~269~~363

1930%

Percentage of revenue

1215

1412

1213

Sales and marketing expense increased by $12.16 million, or 1718%, to $8283.62 million during the three months ended ~~August~~November 21, 2019 from $70.6 million during the three months ended ~~August~~November 32, 2018. The increase in sales and marketing expense was primarily due to an increase in ~~personnel~~headcount ~~costs~~ in our sales and marketing teams of $~~11.~~6.3 million, an increase in sales commission expense of $1.8 million and an increase in expenses of $4.0 million related to our SpringOne Platform Conference.

Sales and marketing expense increased by $2437.62 million, or 18%, to $~~164~~247.35 million during the ~~six~~nine months ended ~~August~~November 21, 2019 from $~~139~~210.73 million during the ~~six~~nine months ended ~~August~~November 32, 2018. The increase in sales and marketing expense was primarily due to an increase in ~~personnel~~headcount and related costs in our sales and marketing teams of $2430.4 million, an increase in commission spend of $2.6 million and an increase in spend related to the timing of our conference activity of $2.9 million.

Research and development expense increased by $~~11.~~7.0 million, or 2513%, to $58.78 million during the three months ended ~~August~~November 21, 2019 from $4751.09 million during the three months ended ~~August~~November 32, 2018. The increase in research and development expense was primarily due to an increase in personnel costs of $107.15 million, particularly around our product investments in cloud and PKS, ~~and~~offset ~~higher~~by ~~cloud~~savings in infrastructure ~~spend~~and ofother $1costs.~~4 million.~~

Research and development expense increased by $2330.5 million, or 2621%, to $~~114~~173.98 million during the ~~six~~nine months ended ~~August~~November 21, 2019 from $91143.43 million during the ~~six~~nine months ended ~~August~~November 32, 2018. The increase in research and development expense was primarily due to an increase of $2331.67 million in ~~personnel~~headcount ~~costs~~related spend and allocated ~~overheads~~overhead.

General and administrative expense increased by $1.5 million, or 7%, to $22.6 million during the three months ended August 2, 2019 from $21.0 million during the three months ended August 3, 2018. The increase in general and administrative expense was primarily due to an increase in personnel costs of $2.4 million, an increase in third party labor and professional services of $1.2 million, offset by a $1.5 million non-cash write-off of certain intangible assets in the prior period that did not reoccur.27

26General and administrative expense increased by $10.1 million, or 49%, to $30.6 million during the three months ended November 1, 2019 from $20.5 million during the three months ended November 2, 2018. The increase in general and administrative expense was primarily due to $6.9 million of professional fees associated with the Merger, and the remainder was primarily attributable to increased headcount to support the growth of the business.

General and administrative expense increased by $717.34 million, or 1930%, to $4475.73 million during the ~~six~~nine months ended ~~August~~November 21, 2019 from $3758.40 million during the ~~six~~nine months ended ~~August~~November 32, 2018. The increase in general and administrative expense was primarily due anto ~~increase of~~ $46.29 million inof ~~personnel~~professional ~~costs,~~fees ~~$2.4~~associated ~~million~~with inthe ~~third party labor spend~~Merger, and ~~$1.8~~the ~~million~~remaining onamount ~~infrastructure~~was ~~costs,~~driven ~~offset~~ by aincreases ~~one~~in ~~time~~headcount ~~$1.5~~and ~~million~~other ~~non-cash write-off of certain intangible assets~~expenses.

Non-Operating Expenses

Other Income, Net

Three Months Ended

~~Six~~Nine Months Ended

August 2, 2019

August 3, 2018

August 2, 2019

August 3, 2018

November 1, 2019

November 2, 2018

November 1, 2019

November 2, 2018

Amount

$ Change

% Change

Amount

$ Change

% Change

(dollars in thousands)

Other income, net

32,~~820~~634

~~237~~1,866

~~3,583~~768

~~1,512~~41%

710,~~420~~054

~~546~~2,412

67,~~874~~642

~~1,259~~317%

Other income, net increased by $30.68 million to $32.86 million for the three months ended ~~August~~November 21, 2019 from $01.29 million for the three months ended ~~August~~November 32, 2018. Other income, net generated for both the three months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018 was primarily due to interest earned on money market investments of $4.3.6 million and $2.36 million, respectively, offset by foreign currency losses in our international operations.

Other income, net increased by $67.96 million to $710.41 million for the ~~six~~nine months ended ~~August~~November 21, 2019 from $02.54 million for the ~~six~~nine months ended ~~August~~November 32, 2018. Other income, net generated for both the ~~six~~nine months ended ~~August~~November 21, 2019 and ~~August~~November 32, 2018 resulted from interest earned on money market investments of $811.39 million and $25.61 million, respectively. In addition, we had gains on sales of investments of $1.1 million and $3.2 million, respectively, offset by foreign currency losses in our international operations.

Income Taxes

Provision for (benefit from) Income Taxes

	Three Months Ended								~~Six~~Nine Months Ended
	August 2, 2019		August 3, 2018						August 2, 2019		August 3, 2018
	November 1, 2019		November 2, 2018						November 1, 2019		November 2, 2018
	Amount		Amount		$ Change			% Change	Amount		Amount			$ Change		% Change
	(dollars in thousands)								(dollars in thousands)
Provision for (benefit from) income taxes	$	525	$	437	$	88		20%	$	1,000	$	(227	)	$	1,227	541%
Provision for income taxes	$	409	$	776	$	(367	)	(47)%	$	1,409	$	549		$	860	(157)%

As a result of the stock issued in our IPO, we are no longer included in the Dell consolidated U.S. federal return and will file a separate U.S. federal return on a go-forward basis. The federal deferred tax assets and liabilities previously calculated on a separate return basis have been adjusted to reflect only the actual carryforward items which Pivotal will have on its separate federal tax return. There was no impact on our provision for income taxes due to a corresponding reduction in the related valuation allowance.

Our provision for income taxes for the three months ended ~~August~~November 21, 2019 was $0.54 million. Our provision for income taxes for the three months ended ~~August~~November 32, 2018 was $0.48 million. Our quarterly provision is primarily driven by foreign taxes due in profitable jurisdictions and fluctuates due to variability in our services profitability in total and among the tax jurisdictions in which we operate.

Our provision for income taxes for the ~~six~~nine months ended ~~August~~November 21, 2019 was $1.04 million. Our ~~benefit~~provision ~~from~~for income taxes for the ~~six~~nine months ended ~~August~~November 32, 2018 was $0.25 million. Our provision ~~(benefit)~~ is primarily driven by foreign taxes due in profitable jurisdictions and fluctuates due to variability in our services profitability in total and among the tax jurisdictions in which we operate and other adjustments.

2728

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP information is useful in evaluating our operating results. We use the following non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information may be helpful to investors because it provides consistency and comparability with past financial performance, and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly- titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the GAAP financial measures together with such reconciliations.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, adjusted for stock-based compensation expense and amortization of acquired intangibles.

	Three Months Ended						~~Six~~Nine Months Ended
	August 2, 2019			August 3, 2018			August 2, 2019			August 3, 2018
	November 1, 2019			November 2, 2018			November 1, 2019			November 2, 2018
	(dollars in thousands)						(dollars in thousands)
Gross profit	$	~~132~~137,~~471~~338		$	~~103~~107,~~174~~151		$	~~257~~394,~~584~~922		$	~~199~~306,~~618~~769
Add:
Stock-based compensation expense included in cost of revenue	6,~~135~~270			4,~~599~~652			1117,~~319~~589			711,~~115~~768
Amortization of acquired intangibles included in cost of revenue	5122			~~433~~340			~~120~~142			~~865~~1,204
Non-GAAP gross profit	$	~~138~~143,~~657~~630		$	~~108~~112,~~206~~143		$	~~269~~412,~~023~~653		$	~~207~~319,~~598~~741
Gross margin	69		%	6364		%	68		%	6263		%
Non-GAAP gross margin	72		%	6667		%	7172		%	65		%

Non-GAAP Operating Loss

We define non-GAAP operating loss and non-GAAP operating margin as GAAP operating profit and GAAP operating margin, adjusted for stock-based compensation expense and amortization of acquired intangibles.

	Three Months Ended						~~Six~~Nine Months Ended
	August 2, 2019			August 3, 2018			August 2, 2019			August 3, 2018
	November 1, 2019			November 2, 2018			November 1, 2019			November 2, 2018
	(dollars in thousands)						(dollars in thousands)
Operating loss	$	(3135,~~401~~332	)	$	(35,~~402~~895	)	$	(66101,~~309~~641	)	$	(68104,~~932~~827	)
Add:
Stock-based compensation expense	2526,~~427~~164			19,~~044~~428			4773,~~397~~561			2949,~~805~~233
Amortization of acquired intangibles	1,~~514~~485			1,~~727~~632			24,~~699~~184			35,~~448~~077
Non-GAAP operating loss	$	(4,460	)	$	(14,631	)	$	(16,213	)	$	(35,679	)
Acquisition related expenses	7,127			—			7,127			—
Non-GAAP operating loss	$	(556	)	$	(14,835	)	$	(16,769	)	$	(50,517	)

2829

Liquidity and Capital Resources

Overview

To date, our principal sources of liquidity have been the net proceeds we received through the sale of our common stock in our IPO, private sales of equity securities, payments received from customers using our platform and services and borrowings under our line of credit. Following the completion of our IPO, we received aggregate proceeds of $544.4 million, net of underwriters’ discounts and commissions and offering costs paid. As of ~~August~~November 21, 2019, we had cash and cash equivalents totaling $~~808~~821.49 million, which we intend to use for working capital, operating expenses, and capital expenditures. We may also use a portion of this to acquire complementary businesses, products, services, or technologies. Our cash equivalents are comprised primarily of money market funds. We believe that our existing cash, cash equivalents, and investments will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, billing terms of our subscription contracts, timing of collection of accounts receivable, the rate of expansion of our workforce, the timing and extent of our expansion into new markets, the timing of introductions of new functionality and enhancements to our platform and the continuing market acceptance of our platform, as well as general economic and market conditions. We may need to raise additional capital or incur indebtedness to continue to fund our operations in the future or to fund our needs for other strategic initiatives, such as acquisitions. We also foresee entering into lease and other related facilities obligations to support any future growth in our headcount.

InOn ~~September 2017~~October 22, 2019, we ~~entered~~terminated ~~into~~our a credit agreement and a related security agreement. ~~with~~As ~~Silicon~~part ~~Valley~~of ~~Bank,~~the ~~as administrative agent~~termination, ~~and~~we ~~other~~accelerated ~~banks~~the ~~named~~associated ~~therein~~unamortized ~~that~~debt ~~provide~~costs, ~~for~~which aresulted ~~senior~~in ~~secured~~$0.3 ~~revolving~~million ~~credit~~of ~~facility~~expense in anthe ~~aggregate~~period. ~~principal~~Prior ~~amount not~~ to ~~exceed~~that ~~$100.0 million~~date, ~~(the~~we ~~“Revolving~~maintained ~~Facility”).~~a Wecredit ~~may~~agreement ~~also~~and ~~request~~a ~~from~~related ~~time~~security toagreement ~~time,~~that ~~subject~~provided tofor ~~certain~~a ~~conditions,~~senior ~~increases~~secured inrevolving ~~the~~credit ~~commitments~~facility ~~under the Revolving Facility~~ in an aggregate principal amount ofnot up to exceed $50100.0 million on (the ~~same maturity, pricing and other terms applicable to the then-existing commitments under the~~ “Revolving Facility”).We ~~There~~had ~~can be~~ no ~~assurance~~amounts ~~that~~outstanding ~~such increases will be available. Borrowings~~ under the Revolving Facility ~~are~~when ~~secured~~we byterminated ~~our tangible assets. Our borrowing capacity under~~ the Revolving Facility ~~is based on our subscription revenue~~. ~~The Revolving Facility has a maturity date of September 8, 2020. We had no amounts outstanding under the Revolving Facility as of August 2, 2019.~~

Cash Flows

	Six Months Ended
	Nine Months Ended
	August 2, 2019			August 3, 2018
	November 1, 2019			November 2, 2018
	(in thousands)
Net cash provided by (used in):
Operating activities	$	635,~~740~~039		$	22(13,~~820~~348	)
Investing activities	$	(35,~~007~~293	)	$	(~~818~~3,695	)
Financing activities	$	45120,~~509~~639		$	~~575~~607,~~375~~803

Operating Activities

During the ~~six~~nine months ended ~~August~~November 21, 2019, cash provided by operating activities was $635.70 million primarily due to our net loss of $5993.90 million, adjusted for non-cash charges of $70109.74 million and net cash ~~inflows~~outflows of $5211.94 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation and depreciation and amortization of property and equipment, intangible assets and right of use lease assets. The primary drivers of the changes in operating assets and liabilities related to a $~~185~~151.62 million decrease in accounts receivable driven by collections, offset by a $~~106~~129.38 million decrease in deferred revenue, ~~and~~ a decrease of $1423.80 million in operating lease liabilities and a decrease of $9.4 million in accrued expenses.

During the ~~six~~nine months ended ~~August~~November 32, 2018, cash provided by operating activities was $2213.83 million primarily due to our net loss of $68103.20 million, adjusted for non-cash charges of $3763.65 million and net cash inflows of $5326.41 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation and depreciation and amortization of property and equipment and intangible assets. The primary drivers of the changes in operating assets and liabilities related to a $7643.39 million decrease in accounts receivable offset by a $10.62 million decrease in deferred revenue and a decrease of $16.2 million in accrued expenses.

Investing Activities

For the ~~six~~nine months ended ~~August~~November 21, 2019, cash used in investing activities was $35.03 million, compared to cash used in investing activities of $03.87 million for the ~~six~~nine months ended ~~August~~November 32, 2018. Our investing activities for the ~~six~~nine months ended ~~August~~November 21, 2019 and for the ~~six~~nine months ended ~~August~~November 32, 2018 were attributable to the purchases of property, plant and equipment partially offset by the sale of certain investments within both periods.

Financing Activities

Cash provided by financing activities during the ~~six~~nine months ended ~~August~~November 21, 2019 of $45120.56 million was ~~directly~~ attributable to proceeds from the exercise of stock options and proceeds from other employee stock plans of $94.1 million, and cash received from Dell relating to our tax sharing agreement of $26.5 million.

Cash provided by financing activities during the ~~six~~nine months ended ~~August~~November 32, 2018 of $~~575~~607.48 million was primarily attributable to proceeds from the completion of our IPO of $544.7 million, net of underwriters’ discounts and commissions, and ~~offering~~issuance costs. Additionally, we received $41.3 million in cash from Dell primarily representing the final federal tax sharing payments for fiscal 2018 and we received proceeds from the exercise of stock options of $941.49 million. These inflows were partially offset by repayments of the Revolving Facility of $20.0 million which is net of additional borrowings.

Commitments and Contractual Obligations

During the ~~six~~nine months ended ~~August~~November 21, 2019, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments from those disclosed in our Prospectus. See “Note 15, —Commitments and Contingencies,” in our notes to unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

As of ~~August~~November 21, 2019, we were not subject to any obligations pursuant to any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, that have or are reasonably likely to have a material effect on our financial condition, results of operations or liquidity.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Notwithstanding the addition of the policy disclosed in “Note 2 – —Summary of Significant Accounting Policies” for leases, there have been no material changes to our critical accounting policies and significant judgments and estimates as compared to the critical accounting policies and significant judgments and estimates disclosed in our Annual Report on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk in the ordinary course of business.

Credit and interest rate risk

The fair values of our cash and cash equivalents are exposed to counterparty credit risk. Accordingly, while we periodically review our portfolio in an effort to mitigate counterparty risk, the principal values of our cash and cash equivalents could suffer a loss of value. Any future borrowings incurred under the credit agreement would accrue interest at a floating rate based on a formula tied to certain market rates at the time of incurrence. A 10% increase or decrease in interest rates would not have a material effect on our interest expense.

Concentration risk

As of ~~August~~November 21, 2019 and February 1, 2019, no individual customer represented 10% or more of accounts receivable.

Dell and VMware invoice our customers and collect invoiced amounts on our behalf. As of ~~August~~November 21, 2019 and February 1, 2019, $3842.50 million and $161.5 million invoiced on our behalf by Dell and VMware was recorded in accounts receivable, respectively.

Foreign currency risk

Although 25% and 24% of our total revenue for the three and ~~six~~nine months ended ~~August~~November 21, 2019, respectively, was derived from sales outside the United States, the majority of such revenue is from sales transactions that are denominated in U.S. dollars. For transactions denominated in a currency other than the functional currency, we are exposed to risks of foreign currency fluctuation and are subject to transaction gains and losses, which are recorded as other income (expense), net in the condensed consolidated statements of operations.

Our results of operations and cash flows have been and will continue to be subject to fluctuations because of changes in foreign currency exchange rates, particularly changes in exchange rates between the U.S. Dollar and the British Pound, the Euro and the Canadian Dollar, the currencies of countries where we currently have our most significant international operations. Foreign currency rate fluctuations did not have a material effect on our results of operations and cash flows. As our international operations grow, our risks associated with fluctuation in currency rates may intensify, and we will continue to reassess our approach to managing this risk.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in legal proceedings and subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the resolution of these ordinary course matters will not have a material adverse effect on our business, operating results, financial condition or cash flows.

InBetween ~~addition, between~~ June 14, 2019 and June 27, 2019, six complaints were filed against us in state and federal court in San Francisco: Hill v. Pivotal Software, Inc., No. CGC-19-576750 (S.F. Super Ct. Jun. 14, 2019); Tran v. Pivotal Software, Inc., No. CGC-19-576806 (S.F. Super Ct. Jun. 18, 2019); Abera v. Pivotal Software, Inc., No. 4:19-cv-03601 (N.D. Cal. Jun. 20, 2019); Doherty v. Pivotal Software, Inc., No. 3:19-cv-03589 (N.D. Cal. Jun. 20, 2019); Kleinman v. Pivotal Software, Inc., No. 3:19-cv-03605 (N.D. Cal. Jun. 21, 2019) and Mothorpe v. Pivotal Software, Inc., No. CGC-19-577110 (S.F. Super Ct. Jun. 27, 2019). All of the complaints are putative class actions brought by ~~shareholders~~stockholders against us and other defendants alleging violations of the securities laws in connection with disclosures made in connection with our IPO and thereafter. The plaintiffs in those cases are seeking to have the cases certified as class actions, and also seek damages and legal fees. On November 15, 2019, the Doherty action was consolidated with the Abera and Kleinman actions. This consolidated federal case—now called In re Pivotal Securities Litigation—remains pending. At this time, it is not reasonably possible to determine the ultimate resolution of, or estimate the liability related to, these matters.

As of the date of this report, Pivotal is aware of six complaints related to the Merger Agreement having been filed: Briant v. Pivotal Software, Inc., No. 1:19-cv-09479 (S.D. N.Y. Oct. 14, 2019); Plumley v. Pivotal Software, Inc., No. 1:19-cv-01974 (D. Del. Oct. 17, 2019); Shan v. Pivotal Software, Inc., No. 3:19-cv-06814 (N.D. Cal. Oct. 21, 2019); Silverberg v. Pivotal Software, Inc., No. 3:19-cv-06977 (N.D. Cal. Oct. 24, 2019); Rothman v. Pivotal Software, Inc., No. 3:19-cv-07066 (N.D. Cal. Oct. 28, 2019); and Parada v. Pivotal Software, Inc., No. 1:19-cv-06306 (E.D.N.Y. Nov. 7, 2019). The complaints are brought by putative stockholders against Pivotal and members of our board of directors and the Pivotal Special Committee. The Shan complaint also names VMware and Merger Sub as defendants. Among other things, the complaints allege that the disclosures in our proxy statement filings violate the Exchange Act and the rules and regulations promulgated thereunder. In addition, the Shan complaint alleges that members of our board of directors breached their fiduciary duties in connection with the board of director’s approval of the Merger Agreement. The plaintiffs in these cases seek various forms of relief, including unspecified monetary damages, legal fees, and injunctive relief enjoining consummation of the Merger. The plaintiffs in all actions other than Briant and Parada seek to have their cases certified as class actions.

Although the results of the claims in which we are involved cannot be predicted with certainty, we do not believe that there is a reasonable possibility that the final outcome of these matters will have a material adverse effect on our business, financial condition, operating results, or cash flows. However, the final results of any current or future proceeding cannot be predicted with certainty, and until there is final resolution on any such matter that we may be required to accrue for, we may be exposed to loss in excess of the amount accrued. Even if any particular litigation is not resolved in a manner that is adverse to our interests, such litigation can have a negative impact on us because of defense and settlement costs, diversion of management resources from our business and other factors.

ITEM 1A. RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the following risks, together with all of the other information contained in our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K before making a decision to invest in our Class A common stock. Any of the following risks could have an adverse effect on our business, results of operations, financial condition and prospects, and could cause the trading price of our Class A common stock to decline, which would cause you to lose all or part of your investment. Our business, results of operations, financial condition, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.

Risks Related to Our Business and Industry

We have a limited operating history as an independent company, which makes it difficult to evaluate our prospects and increases the risk of your investment.

We have a limited operating history as an independent company and are scaling quickly, which makes it difficult to evaluate our business and prospects, including our ability to plan for and model future growth. As a relatively early stage company, we have encountered and will continue to encounter risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, including the risks described here. If we do not plan appropriately or do not address these risks successfully, our business and prospects will be adversely affected, and the market price of our Class A common stock could decline.

We have incurred substantial losses and may not be able to generate sufficient revenue to achieve and sustain profitability.

We have incurred net losses in each year since we were formed, including net losses of $141.9 million for fiscal 2019 and $163.5 million for fiscal 2018, respectively. As of ~~August~~November 21, 2019, we had an accumulated deficit of $1,~~344~~377 million and our net cash provided by operating activities was $635.70 million for the ~~six~~nine months ended ~~August~~November 21, 2019. We may not achieve sufficient revenue to attain and maintain profitability. We expect our operating expenses to increase significantly in the future as we hire additional sales, marketing, research and development and other employees across functions, increase or make strategic investments, scale relationships with ecosystem partners and open new offices. In addition, we expect to incur significant additional legal, accounting and other expenses related to being a public company. As a result of these increased expenses, we will have to generate and sustain increased revenue in order to become profitable in future periods. Because some of the markets for our offering are rapidly evolving and are not mature, it is difficult for us to predict our future results of operations. We cannot assure you that we will achieve profitability in the future or that, if we do become profitable, we will be able to sustain profitability. Any failure by us to achieve, sustain or increase profitability or generate positive cash flow from operations on a consistent basis could cause the value of our Class A common stock to decline.

us to achieve, sustain or increase profitability or generate positive cash flow from operations on a consistent basis could cause the value of our Class A common stock to decline.

Our future success depends in large part on the growth of our target markets. Even if our target markets grow as expected, our ability to further penetrate these markets is uncertain.

Our ability to increase sales of PCF and Labs depends on growth in our target markets, which include the markets for cloud application infrastructure, ~~Platform~~platform-as-service (“PaaS”) and application infrastructure, middleware and development solutions. Our expectations regarding the potential for future growth in the markets for these types of offerings are subject to uncertainty. In particular, even if there is increased enterprise adoption of public cloud strategies, we cannot assure you that enterprise demand for multi-cloud solutions like ours will grow commensurately. If market demand does not grow as expected, our business and prospects may be adversely affected.

Even if these markets grow as expected, we cannot be sure that our business will grow at a similar rate, or at all. Our experience in the markets and our experience selling PCF are relatively limited, and PCF has been commercially available for a limited period of time. We began selling PCF in fiscal 2014 and frequently update its features and functionality. Our ability to increase sales of PCF and our other offerings is affected by a number of factors beyond our control, including market acceptance of our offerings by existing customers and potential new customers, the extension of our offerings to new use cases and workloads, changing open-source platform technologies and standards and the timing of development and release of new products, capabilities and functionality by our competitors and by us. In addition, while we seek to expand the use of PCF through our Labs projects, we cannot assure you that we will be successful or that PCF and Labs as a complementary offering will produce the benefits that we expect. In addition, we cannot assure you that our offerings and future enhancements to our offerings will be able to address future advances in technology or requirements of existing customers or potential new customers. If we are unable to meet customer demands, to leverage the strengths of PCF and Labs as complementary offerings or to achieve more widespread market acceptance of our offerings, our business, results of operations, financial condition and growth prospects will be adversely affected.

Our future growth is largely dependent on PCF and platform-related services, and challenges in market acceptance, adoption and growth of PCF could harm our business, results of operations and prospects.

We expect that we will depend on PCF and platform-related services, which include all of our Labs services and most of our implementation services, to generate the vast majority of our future revenue, as revenue from PCF and platform-related services has represented a substantial majority and an increasing portion of our total revenue from fiscal 2017 to fiscal 2019. As a result, our operating results could suffer due to:


•	declines in demand for PCF;


•	failure of PCF to achieve continued market acceptance;


•	the market for cloud-native software not continuing to grow, or growing more slowly than we expect;


•	introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, PCF;


•	technological innovations or new open-source standards that PCF does not address or that favor competitors;


•	sensitivity to current or future prices offered by us or competing solutions; and


•	our inability to release enhanced versions of PCF on a timely basis.

If the market for PCF grows more slowly than anticipated or if demand for PCF does not grow as quickly as we anticipate, whether as a result of competition, pricing sensitivities, product obsolescence, technological change, unfavorable economic conditions, uncertain geopolitical environment, budgetary constraints of our customers or other factors, our business, results of operations and prospects will be harmed.

Our subscription revenue growth rate, both in absolute terms and relative to total revenue, in recent periods may not be indicative of our future performance and ability to grow. Similarly, our services revenue growth rate has fluctuated in recent periods, may continue to fluctuate and will likely decline over the long term as we scale our PCF business.

We have experienced significant growth in recent periods, particularly in subscription revenue, which increased to $400.9 million in fiscal 2019 from $259.0 million in fiscal 2018. Subscription revenue also increased as a percentage of total revenue in each of the last three fiscal years, resulting in an increase of our overall gross profit. Our strategy is to continue to increase subscription revenue in general, relative to services, and as a proportion of our total revenue.

You should not consider our subscription revenue growth rate in recent periods as indicative of our future performance. We may not achieve similar growth rates in future periods. Any success that we may experience in the future will depend in large part on our ability to, among other things:


•	add new customers and retain our existing customers;


•	increase revenue from existing customers through increased or broader use of our platform within their organizations;


•	improve the performance and capabilities of our platform through research and development;


•	continue to successfully expand our business domestically and internationally; and


•	successfully compete.

During the same periods, our services revenue increased to $256.6 million in fiscal 2019 from $250.4 million in fiscal 2018. We are focused on prioritizing the growth of PCF and intend to leverage our existing services and are increasing our reliance on our emerging SI partners to deliver platform-related services to our customers.

Our business and prospects will be harmed if our customers do not renew their subscriptions and expand their use of our platform.

Our future growth depends in part on customers renewing their subscriptions and expanding their use of our platform. The broad adoption of our platform within a customer presents challenges, including changing the customer’s culture and approach to the customer’s development of internal expertise and infrastructure to manage and utilize our platform effectively.

Existing customers have no obligation to renew their subscriptions after the initial term. Given our limited operating history, the limited commercial availability of PCF and the immaturity of the markets in which we operate, we may not be able to accurately predict the rate at which customers will renew their subscriptions. Our customers may not renew their subscriptions or may renew at lower levels or on terms that are less economically beneficial to us. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including customer dissatisfaction with our pricing or the functionality, features or performance of our platform, our inability to meet our contractual commitments, competitors’ product offerings, internally-developed, open-source solutions that do not require vendor assistance, changing open-source standards, consolidation within our customer base and other factors, a number of which are beyond our control. If our customers do not renew their subscriptions or renew on less favorable terms, our revenue may grow more slowly than expected, if at all, and our business, results of operations and financial condition will be adversely affected.

Even if our existing customers renew their subscriptions and continue to use PCF, it is important for our success and growth that these customers expand their use of our platform. The rate at which our customers expand their use of our platform depends on a number of factors, including general economic conditions, the functioning of our platform, the ability of our field organization, together with our partners, to assist our customers in identifying new use cases, modernizing their software development approach and IT operational infrastructure and achieving success with ingraining a new culture and our customers’ overall satisfaction.

The purchase of our software and services is discretionary and can involve significant expenditures. If our existing customers cut costs, they may significantly reduce their enterprise software expenditures, and they may not renew or expand their use of our platform.

As technologies and the markets for our software and services change, our subscription-based business model for PCF may no longer meet the needs of our existing customers. Consequently, we may need to develop new and appropriate software and services and marketing and pricing strategies for our solutions. If we are unable to adapt our business model to changes in the marketplace or if demand for our software and services declines, our business, results of operations, financial condition and cash flows could be harmed.

marketplace or if demand for our software and services declines, our business, results of operations, financial condition and cash flows could be harmed.

We operate in a highly competitive industry. Any failure to compete effectively could materially and adversely affect our business, results of operations and financial condition.

The markets within which we operate are highly competitive. A significant number of companies and open-source projects have developed or are developing products and services that currently, or in the future may, compete with some or all of our offerings. In addition, in some instances, we have strategic or other commercial relationships with companies with which we currently or in the future may compete. We face competition from:


•	legacy application infrastructure and middleware from vendors such as IBM and Oracle;


•	open-source based offerings supported by vendors such as Red Hat; alternative Cloud Foundry-based offerings such as IBM Cloud and SAP Cloud Platform, which have proprietary features that are unique to their offerings; or potential customers’ internally-developed, integrated and maintained efforts; and


•	proprietary public cloud offerings from vendors such as Amazon Web Services (including its on-premise cloud offerings), Google Cloud Platform and Microsoft Azure.

Many of our principal competitors have substantially longer operating histories, larger numbers of existing customers, greater capital and research and development resources, broader sales and marketing capabilities, stronger brand and customer recognition, larger intellectual property portfolios and broader global distribution and presence. Our competitors may be able to offer products or functionality similar to ours at a more attractive price than we can by integrating such products with their other product offerings. Acquisitions and consolidation in our industry, such as IBM’s proposed acquisition of Red Hat, may provide our competitors even more resources or may increase the likelihood of our competitors offering integrated products with which we cannot effectively compete. New innovative start-ups and existing large companies that are making significant investments in research and development could also launch new products and services that we do not offer and that could gain market acceptance quickly. If we were unable to anticipate or react to these competitive challenges, our competitive position would weaken, which would adversely affect our business, results of operations and financial condition.

In addition, one of the characteristics of open-source software is that, subject to specified restrictions, anyone may modify and redistribute such software and use it to compete in the marketplace. Such competition can develop with a smaller degree of overhead and lead time than required by traditional proprietary software companies. New open source-based platform technologies and standards are consistently being developed and can gain popularity quickly. Improvements in open source could cause customers to replace software purchased from us with their internally-developed, integrated and maintained open-source software. It is possible for competitors with greater resources than ours to develop their own open-source software-based products and services, potentially reducing the demand for our solutions and putting price pressure on our offerings. We cannot guarantee that we will be able to compete successfully against current and future competitors, that competitive pressure or the availability of new open-source software will not result in price reductions, reduced operating margins or increased sales and marketing expenses or that we will increase our market share, any one of which could harm our business, financial condition, results of operations and cash flows.

Our sales cycles can be long, unpredictable and vary seasonally, which can cause significant variation in the number and size of transactions that close in a particular quarter.

Our results of operations may fluctuate, in part, because of the resource-intensive nature of our sales efforts, the length and variability of the sales cycle for our platform and the difficulty in making short-term adjustments to our operating expenses. Many of our customers are large enterprises, whose purchasing decisions, budget cycles and constraints and evaluation processes are unpredictable and out of our control. Further, the timing of our sales is difficult to predict. The length of our sales cycle, from initial evaluation to payment for our subscriptions can range from several months to well over a year and can vary substantially from customer to customer. Our sales efforts involve significant investment in resources in field sales, partner development, marketing and educating our customers about the use, technical capabilities and benefits of our platform and services. Customers often undertake a prolonged evaluation process, which frequently involves not only our platform but also those of other companies or the consideration of internally -developed alternatives including those using open-source software. Some of our customers initially deploy our platform on a limited basis, with no guarantee that these customers will deploy our platform widely enough across their organization to justify our substantial pre-sales investment. As a result, it is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. Large individual sales have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. If our sales cycle lengthens or our substantial upfront investments do not result in sufficient revenue to justify our investments, our operating results could be adversely affected.

our substantial upfront investments do not result in sufficient revenue to justify our investments, our operating results could be adversely affected.

We have experienced seasonal and end-of-quarter concentration of our transactions and variations in the number and size of transactions that close in a particular quarter, which impacts our ability to grow revenue over the long term and plan and manage cash flows and other aspects of our business and cost structure. Our transactions vary by quarter, with the fourth quarter typically being our largest. In addition, within each quarter, a significant portion of our transactions occur in the last two weeks of that quarter. If expectations for our business turn out to be inaccurate, our revenue growth may be adversely affected over time and we may not be able to adjust our cost structure on a timely basis and our cash flows may suffer.

We do not control and may be unable to predict the future course of open-source technologies, including those used in our offering, which could reduce the market appeal of our offering and damage our reputation.

We do not control the development of the open-source technology in our offering. We incorporate disparate inputs from various open-source developers and open-source projects, including Kubernetes, whose technology and development decisions we may not control. Different open-source projects may also overlap or compete with the ones that we incorporate into our offering. The technology developed by one group for one project may become more widely used than that developed or integrated by us. Additionally, another company’s distribution of the same open-source technology may be favored by customers over ours if such other company is viewed as a more important contributor to such technology. If we acquire or adopt a new technology and incorporate it into our offering but a competing technology or distribution becomes more widely used or accepted, the market appeal of our offering may be reduced and that could harm our reputation, diminish our brand and harm our prospects.

Different groups of open-source software programmers collaborate with one another to develop certain of the open-source software that may be contained in our offering. If open-source software programmers, many of whom we do not employ, or our own internal programmers do not continue to use, contribute to and enhance the open-source technologies that we rely on, the market appeal of our offering may be reduced, which could harm our reputation, diminish our brand and result in decreased revenue. We also cannot predict whether further developments and enhancements to these open-source technologies will be available from reliable alternative sources. If the open-source technologies that we rely on become unavailable, we may need to invest in researching and developing alternative technologies.

Security and privacy breaches could expose us to liability, damage our reputation, compromise our ability to conduct business, require us to incur significant costs or otherwise adversely affect our financial results.

Any security breach, unauthorized access or usage, virus or similar breach or disruption of our systems or software could result in the loss of confidential information, damage to our reputation and brand, early termination of our contracts, litigation, regulatory investigations or other liabilities. We have implemented administrative, technical and physical measures designed to prevent breach or disruption of our systems and may incur significant costs in connection with implementing additional preventative measures in the future. We have in the past and may in the future experience security breaches. Techniques used to obtain unauthorized access or to sabotage systems change frequently and are often not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any significant security breaches could result in the loss of business, litigation and regulatory investigations and penalties that could damage our reputation and adversely impact our results of operations and financial condition. We also rely heavily on third-party applications and cloud services, which may contain software vulnerabilities and other defects. If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise and, as a result, someone obtains unauthorized access to sensitive data, including intellectual property, proprietary business information or personal information, our reputation would be damaged, our business may suffer and we could incur significant liability. Our existing cybersecurity insurance may not cover any, or cover only a portion of any, potential claims related to security breaches to which we are exposed or may not be adequate to indemnify us for all or any portion of liabilities that may be imposed and our cybersecurity premiums may go up.

Critical vulnerabilities and security defects could harm the market perception of our products or services.

If an actual or perceived critical security vulnerability is reported in our products or services, the market perception of our security measures and the security capabilities of our products or services could be harmed and we could lose sales and customers. For example, we market PCF’s security as one of its principal benefits, so the market perception of PCF’s security is important to our business. Our offerings are highly technical and complex and, when deployed, have contained and may contain errors, defects or security vulnerabilities. Any errors, defects or security vulnerabilities discovered in our offerings could result in loss of revenue or delay in revenue recognition, loss of customers and increased service and warranty cost, any of which could adversely affect our business results of operations and financial condition. Moreover, if a high-profile security breach occurs with respect to another PaaS solution provider, our customers and potential customers may lose trust in PaaS solutions generally, which could adversely impact our ability to retain existing customers or attract new ones.

respect to another PaaS solution provider, our customers and potential customers may lose trust in PaaS solutions generally, which could adversely impact our ability to retain existing customers or attract new ones.

Moreover, PCF is deployed on a customer’s private cloud, a public cloud of its choice, or multiple clouds, and we have no control over our customers and their security personnel, processes or technology. We do not monitor or review the content that our customers store or transmit through PCF or the security measures they implement to deploy PCF. Customers may also delay the installation of, or not install, security updates, leaving them vulnerable. Accordingly, if there is a breach of PCF deployed at a customer’s location or within a customer’s control, our reputation could be damaged, our business may suffer and we could incur significant liability, even though our product was not necessarily the cause of such issue. We are also growing our partner ecosystem, which includes public cloud vendors, SIs and strategic partners, to sell, implement and support our offerings. We also sell our partners’ offerings through the Pivotal Services Marketplace. We lack control over their security measures, and any breach of their security systems could similarly adversely affect us.

Our security profile is also impacted by our use of open-source software in our offering. Open-source software enables public access to source code, which is generally not a security risk posed by proprietary products.

If we do not effectively hire, train, retain and oversee our sales force, we may be unable to add new customers or increase sales to our existing customers, and our business may be adversely affected.

We depend on our sales force to obtain new customers and increase sales with existing customers. Our software and services offering is complex and there is competition for sales personnel with the range of abilities that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in continuing to hire, train and retain sufficient numbers of sales personnel to support our growth, including in international markets. In addition, a large percentage of our sales force is new to our company. New hires require significant training and oversight, typically over a period of several quarters, before they can achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, as we grow our sales force, its organization, management and leadership become increasingly difficult and complex, and, as a result, we may not be able to grow it successfully. If we are unable to hire, train and retain a sufficient number of effective sales personnel, if we are ineffective at overseeing a growing sales force or if the sales personnel we hire are otherwise unsuccessful in obtaining new customers or increasing sales to our existing customers, our business may be adversely affected.

Our future growth depends in large part on the success of our partner relationships.

In addition to our sales force, we rely on partners, including our strategic partners Dell and VMware, public cloud vendors and SIs, to increase our sales and distribution of our software and services. We also have ISV partners whose integrations increase our ecosystem of services. We are dependent on partner relationships to contribute to our growth and to create leverage in our business model. Our future growth will be increasingly dependent on the success of our partner relationships, and if those partnerships do not provide such benefits, our ability to grow our business will be harmed. If we are unable to scale our partner relationships effectively, or if our partners are unable to serve our customers effectively, we may need to expand our services organization, which could adversely affect our results of operations.

Our agreements with our partners are generally non-exclusive, meaning our partners may offer products themselves or from several different companies to their customers or have their products or technologies also interoperate with products and technologies of other companies, including products that compete with our offerings. Moreover, some of our partners also compete with us. If our partners do not effectively market and sell our offerings, choose to use greater efforts to market and sell their own products or those of our competitors or fail to meet the needs of our customers, our ability to grow our business and sell our offerings will be harmed. Furthermore, our partners may cease marketing our offerings with limited or no notice and with little or no penalty, and new partners could require extensive training and may take several months or more to achieve productivity. The loss of a substantial number of our partners, our possible inability to replace them or the failure to recruit additional partners could harm our results of operations. Our partner structure could also subject us to lawsuits or reputational harm if, for example, a partner misrepresents the functionality of our offerings to customers or violates applicable laws or our corporate policies.

We may not be able to respond to rapid technological changes with new offerings, which could have a material adverse effect on our sales and profitability.

The markets for our software platform are characterized by constant technological changes, changing open-source software platform technologies and standards, changing customer needs and frequent new software product introductions and improvements. The introduction of third-party solutions embodying new technologies and the emergence of new industry standards, including any open-source projects that have become widely adopted, could make our existing and future software offerings obsolete and unmarketable. In addition, as the enterprise software landscape evolves, we will continue to reassess the amount and timing of our initiatives. In the near term, we are increasing our investments in and expenditures for additional engineering resources and personnel necessary to compete with these rapidly changing technologies, and these investments and expenditures will affect our profitability.

unmarketable. In addition, as the enterprise software landscape evolves, we will continue to reassess the amount and timing of our initiatives. In the near term, we are increasing our investments in and expenditures for additional engineering resources and personnel necessary to compete with these rapidly-changing technologies, and these investments and expenditures will affect our profitability.

If we are not able to maintain and enhance our brand, our business and results of operations may be adversely affected.

We believe that protecting our Pivotal brand and maintaining and enhancing our reputation as a pioneer in cloud-native software, agile software development and DevOps is critical to our relationship with our existing customers and partners and our ability to attract new customers and partners. The successful promotion of our brand will depend on a number of factors, including our ability to continue to develop high-quality features and functionality for our offerings, our ability to successfully differentiate our offerings, delivery of customer value, leadership in open-source software, our marketing efforts and our continued protection of our brand. Our brand promotion activities may not be successful or yield increased revenue.

In addition, independent industry analysts often provide reviews of our offerings, as well as offerings of our competitors, and the perception of our offerings in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive as compared to those of our competitors’ products and services, our brand may be adversely affected. The performance of our partners may also affect our brand and reputation if customers do not have a positive experience with our partners’ services. The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new markets, and as more sales are generated through our partners and more services are performed by our partners. To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand, our business may not grow, we could lose customers or fail to attract potential customers, all of which would adversely affect our business, results of operations and financial condition.

Our stock price and trading volume are heavily influenced by the way analysts and investors interpret our financial information and other disclosures. Any unfavorable interpretations published by analysts or held by investors could have a negative impact on our stock price, regardless of accuracy, and any decline or lapse in the publication of research by analysts could cause our stock price and trading volume to decline.

The trading market for our Class A common stock depends in part on the research reports that analysts publish about our business. If few analysts cover us, demand for our Class A common stock could decrease and our Class A common stock price and trading volume may decline. Similar results may occur if one or more of these analysts stop covering us in the future or fail to publish reports on us regularly.

Even if our stock is actively covered by analysts, we do not have any control over the analysts or the measures that analysts or investors may rely upon to forecast our future results. For example, in order to assess our business activity in a given period, analysts and investors may look at the combination of revenue and changes in deferred revenue in a given period (sometimes referred to as "“billings"”).

Over-reliance on billings or similar measures may result in analyst or investor forecasts that differ significantly from our own for a variety of reasons, including:

• a relatively large number of transactions occur at the end of the quarter. Invoicing of those sales may or may not occur before the end of the quarter based on a number of factors, including: the volume of transactions, the timing of receipt of information from the customer, the timing of subscription contract start dates, the timing and end dates of our fiscal quarters and fiscal years now that we have changed to a 52- or 53-week fiscal year basis ending on the Friday nearest to January 31 of each year (a "“4-4-5 Fiscal Year"”) and the resulting shifting dates of our quarter end, and holidays. A shift of a few days has little economic impact on our business, but can shift deferred revenue from one period into the next;


•	multi-year upfront billings may distort trends;


•	subscriptions that have deferred start dates; and


•	services that are invoiced upon delivery.

In addition, as required by the revenue recognition standard under Accounting Standard Codification Topic 606, Revenue From Contracts With Customers ("“ASC 606"”), we disclose our remaining performance obligations. This disclosure obligation is prepared on the basis of estimates based upon contractual arrangements and historical patterns of delivery. Market practices surrounding the calculation of this measure are still evolving. It is possible that analysts and investors could misinterpret our disclosure or that the terms of our customer contracts or other circumstances could cause our methods for calculating this disclosure to differ significantly from others, which could lead to inaccurate or unfavorable forecasts by analysts and investors.

prepared on the basis of estimates based upon contractual arrangements and historical patterns of delivery. Market practices surrounding the calculation of this measure are still evolving. It is possible that analysts and investors could misinterpret our disclosure or that the terms of our customer contracts or other circumstances could cause our methods for calculating this disclosure to differ significantly from others, which could lead to inaccurate or unfavorable forecasts by analysts and investors.

Regardless of accuracy, unfavorable interpretations of our financial information and other public disclosures could have a negative impact on our stock price. If one or more of the analysts who cover us publish unfavorable research about our business or otherwise downgrade our Class A common stock for any reason, the price of our Class A common stock would likely decline.

The loss of one or more members of our senior management team or an inability to attract and retain highly skilled employees, for which competition is intense, could adversely affect our planned growth.

Our success depends largely upon the continued service of our senior management team. From time to time, there may be changes in our senior management team, which could disrupt our business. Members of our senior management could terminate their employment with us at any time.

To execute our growth plan, we must attract and retain highly skilled employees. Competition for such personnel is intense, especially for engineers with high levels of experience in designing, developing and supporting software and for senior sales executives. We work on open-source software-based projects, making our developers highly marketable to other companies that work on similar projects. We may not be successful in attracting and retaining qualified personnel. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. In addition, our compensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating our existing employees. Further, many of our employees may be able to receive significant proceeds from sales of our Class A common stock in the public markets, which may reduce their motivation to continue to work for us. In addition, employees may be more likely to leave us if the exercise prices of the stock options that they hold are significantly above the market price of our Class A common stock. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed.

Failure to manage our growth and maintain our corporate culture will harm our business.

We have substantially increased our overall headcount and expanded our business and operations in recent periods. Our headcount increased to 32,~~018~~968 full-time employees at the end of our ~~second~~third quarter of fiscal 2020 from 2,671 full-time employees at the end of our first quarter of fiscal 2019. We have also expanded into additional geographic locations and added office space, including outside the United States. We expect to continue to expand our operations and employee headcount in the near term; however, our recent growth rates may not be indicative of our future growth. Our success will depend in part on our ability to continue to grow and to manage this growth effectively.

Our recent growth has placed, and future growth will continue to place, significant demands on our management, infrastructure and other resources and increased our costs. We will need to continue to develop and improve our operational, financial and management controls, and our reporting systems and procedures to manage the expected growth of our operations and personnel, which will require significant capital expenditures and allocation of valuable management and employee resources. If we fail to implement these infrastructure improvements effectively, our ability to ensure uninterrupted operation of key business systems and comply with the rules and regulations that are applicable to public reporting companies will be impaired. Further, if we do not effectively manage the growth of our business and operations, the quality of our platform and services could suffer, and we may not be able to adequately address competitive challenges. This could impair our ability to attract new customers, retain existing customers and expand their use of our platform, all of which would adversely affect our brand, overall business, results of operations and financial condition.

We believe that our culture has been and will continue to be a key contributor to our success. Our culture and core principles are critical to how we run our business, how we engage with our key constituencies, including our customers, and how we build and deliver our offerings. If we do not continue to maintain our unique culture as we grow, our business could be harmed.

Incorrect or improper implementation or use of our software or inability of our platform to integrate with third-party software or hardware could result in customer dissatisfaction and negatively affect our business, operations, financial results and growth prospects.

Our software is deployed in a wide variety of complex technology environments, and we believe our future success will depend on our ability to increase sales of our software subscriptions for use in such deployments. Our platform must also integrate with a variety of operating systems, software applications and hardware developed by others. We often assist our customers in achieving successful implementations for large, complex deployments. If we or our customers are unable to implement our software successfully, or are unable to do so in a timely manner, or if we are unable to devote the necessary resources to ensure that our solutions inter-operate with other software, systems and hardware, customer perceptions of our company may be impaired, our reputation and brand may suffer and customers may choose not to increase their use of our software.

with a variety of operating systems, software applications and hardware developed by others. We often assist our customers in achieving successful implementations for large, complex deployments. If we or our customers are unable to implement our software successfully, or are unable to do so in a timely manner, or if we are unable to devote the necessary resources to ensure that our solutions inter-operate with other software, systems and hardware, customer perceptions of our company may be impaired, our reputation and brand may suffer and customers may choose not to increase their use of our software.

Once our platform is implemented on our customers’ selected hardware, software or cloud infrastructure, our customers may depend on our support organization services to help them take full advantage of PCF, quickly resolve post-deployment issues and provide effective ongoing support. If our support organization or those of our partners do not offer high-quality services, our ability to sell our offerings to existing customers or to have them renew their subscriptions would be adversely affected. In addition, as we expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training and documentation in languages other than English.

The reliability of our platform will continue to be critical to our success. Sustained errors, failures or outages could lead to significant costs and service disruptions, which could negatively affect our business, financial results and reputation.

Our reputation and ability to attract, retain and serve our customers are dependent upon the reliable performance of our platform and our underlying technical and network infrastructure. We have experienced, and will in the future experience, interruptions, outages and other performance problems. In addition, we rely on third-party service providers to host and deliver our cloud-based offerings, and these third parties may also experience interruptions, outages and other performance problems. Such disruptions may be due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints and inadequate design. A future rapid expansion of our business could increase the risk of such disruptions. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time.

In addition, we could face claims for product liability, tort or breach of warranty. Our contracts with customers contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of us and our offerings. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, results of operations and financial condition could be adversely impacted.

Adverse economic conditions or reduced information technology spending may adversely impact our revenues.

Our business depends on the overall demand for information technology and on the economic health of our current and prospective customers. The purchase of our offerings is often discretionary and may involve a significant commitment of capital and other resources. Weak economic conditions, or a reduction in information technology spending even if economic conditions improve, would likely adversely impact our business, results of operations and financial condition in a number of ways, including by lengthening sales cycles, lowering prices for our products and services and reducing sales. In addition, any changes in the domestic or international political environment or deterioration in international relations as well as resulting regulatory or tax policy changes may adversely affect our business and financial results. Furthermore, during challenging economic times our customers may face issues in gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be required to increase our allowance for doubtful accounts, which would adversely affect our financial results.

We do not have an adequate history with our subscription or pricing models to accurately predict the long-term rate of customer adoption or renewal, or the impact these will have on our revenue or operating results.

We have a limited history with our subscription offerings and pricing model and if, in the future, we are forced to reduce prices for our subscription offerings, our revenue and results of operations will be harmed. We may not be able to accurately predict the long-term rate of customer adoption or renewal, or the impact these will have on our revenue or operating results. We also have limited experience with respect to determining the optimal prices and pricing models for our solution. As a result, in the future we may be required to reduce our prices, which could adversely affect our revenue, gross margin, profitability, financial position and cash flow.

We generate revenue from sales outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations. Challenges presented by international economic, political, legal, accounting and business factors could negatively affect our business, financial condition or results of operations.

Our business is subject to several risks associated with our non-U.S. operations. These risks may intensify to the extent we successfully scale our non-U.S. business. Accordingly, our future results could be materially and adversely affected by a variety of factors relating to our non-U.S. operations, including, among others, the following:


•	fluctuations in foreign currency exchange rates;


•	changes in a specific country’s or region’s economic conditions;


•	political or social unrest;


•	trade restrictions;


•	import or export licensing requirements;


•	changes in international tax laws;


•	changes in regulatory requirements;


•	difficulties in staffing and managing international operations;


•	stringent data protection regulations in some foreign countries;


•	compliance with a variety of foreign laws and regulations; and


•	longer payment cycles or collectability concerns in certain countries.

The occurrence of any one of these risks could harm our business and results of operations. Additionally, operating in international markets requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required to operate in other countries will produce desired levels of revenue or profitability.

Sales to customers located outside of the United States represented 23% of our total revenue for both fiscal 2019 and fiscal 2018. We intend to continue to increase sales outside of the United States. In order to maintain and expand our sales internationally, we need to hire and train experienced personnel to staff and manage our foreign operations. To the extent that we experience difficulties in recruiting, training, managing and retaining international staff, and specifically sales management and sales personnel, we may experience difficulties in growing our international sales and operations. If we are not able to maintain successful partner relationships internationally, our future success in such markets could be limited. In addition, the costs associated with scaling our business outside the United States may be significant.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our results of operations.

Our sales contracts are primarily denominated in U.S. dollars, and therefore substantially all of our revenue is not subject to foreign currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our platform to our customers outside of the United States, which could adversely affect our results of operations. In addition, an increasing portion of our operating expenses is incurred and an increasing portion of our assets is held outside the United States. These operating expenses and assets are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, which could have an adverse impact on the results of our operations.

Due to the global nature of our business, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or similar anti-bribery laws in other jurisdictions in which we operate, and various international trade and export laws.

Non-U.S. operations, particularly in those countries with developing economies, are also subject to risks of violations of laws prohibiting improper payments and bribery, including the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act and similar anti-bribery laws in foreign jurisdictions, which generally prohibit U.S.-based companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business to non-U.S. officials, or in the case of the U.K. Bribery Act, to any person. Our global operations require us to import from and export to several countries, which geographically stretches our compliance obligations. In addition, changes in such laws could result in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition and results of operations. Our employees, contractors and agents may take actions in violation of the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act or other anti-bribery laws. Any such violations, even if due to acts or inadvertence of our employees, or due to the acts or inadvertence of others, could subject us to civil or criminal penalties or otherwise have an adverse effect on our business and reputation.

to any person. Our global operations require us to import from and export to several countries, which geographically stretches our compliance obligations. In addition, changes in such laws could result in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition and results of operations. Our employees, contractors and agents may take actions in violation of the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act or other anti-bribery laws. Any such violations, even if due to acts or inadvertence of our employees, or due to the acts or inadvertence of others, could subject us to civil or criminal penalties or otherwise have an adverse effect on our business and reputation.

Our sales to government entities and highly regulated organizations are subject to a number of challenges and risks.

We sell to U.S. federal and state and foreign governmental agency customers, as well as to customers in highly regulated industries such as financial services, pharmaceuticals, insurance and healthcare. Sales to such entities are subject to a number of challenges and risks. Selling to such entities can be highly competitive, expensive and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government contracting requirements may change and in doing so restrict our ability to sell into the government sector until we have attained the revised certification. Government demand and payment for our offerings are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings.

Further, governmental and highly regulated entities may demand shorter subscription periods or other contract terms that differ from our standard arrangements, including terms that can lead those customers to obtain broader rights in our offerings than would be standard. Such entities may have statutory, contractual or other legal rights to terminate contracts with us or our partners due to a default or for other reasons, and any such termination may adversely affect our reputation, business results of operations and financial condition.

would be standard. Such entities may have statutory, contractual or other legal rights to terminate contracts with us or our partners due to a default or for other reasons, and any such termination may adversely affect our reputation, business results of operations and financial condition.

Because we recognize subscription revenue over the terms of our contracts, fluctuations in new transactions will not be immediately reflected in our operating results and may be difficult to discern. Professional services revenue may fluctuate significantly from period to period.

We generally recognize subscription revenue from customers ratably over the terms of their contracts, which are typically one to three years. As a result, most of the subscription revenue we report for each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous periods. Consequently, a decline in subscription sales in any single quarter would likely have only a small impact on our revenue for that quarter. However, such a decline would negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in transactions and market acceptance of our platform may not be fully apparent from our reported results of operations until future periods.

We may be unable to adjust our cost structure to reflect the changes in revenues. In addition, a significant portion of our costs is expensed as incurred, while subscription revenue is recognized over the applicable subscription term. As a result, increased growth in the number of our customers could result in our recognition of more costs than revenue in the earlier periods of the terms of our contracts. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional transactions in any period, as revenue from new customers must be recognized over the applicable subscription term.

Professional services revenue is recognized as the services are performed or delivered, depending on the type of engagement. Professional services engagements often span from a few weeks to several months, which makes it somewhat difficult to predict the timing of revenue recognition for such services and the corresponding effects on our results of operations. Professional services revenue has fluctuated and may continue to fluctuate significantly from period to period. In addition, because professional services expenses are recognized as the services are performed or upon completion of the project, professional services and total margins can significantly fluctuate from period to period.

If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings.

Under Generally Acceptable Accounting Principles ("“GAAP"”), we review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include a decline in our stock price and market capitalization, reduced future cash flow estimates and slower growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, which could harm our results of operations.

We may acquire other businesses which could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our results of operations.

As part of our business strategy, we have in the past made, and may in the future make, acquisitions or investments in complementary companies, products and technologies that we believe fit within our business model and can address the needs of our customers and potential customers. In the future, we may not be able to acquire and integrate other companies, products or technologies in a successful manner. We may not be able to find suitable acquisition candidates, and we may not be able to complete such acquisitions on favorable terms, if at all. In addition, the pursuit of potential acquisitions may divert the attention of management and cause us to incur additional expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, including increases in revenue, and any acquisitions we complete could be viewed negatively by our customers, investors and industry analysts.

Future acquisitions may reduce our cash available for operations and other uses. We may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, each of which could adversely affect our financial condition or the value of our Class A common stock. The sale or issuance of equity to finance any such acquisitions would result in dilution to our stockholders. The incurrence of indebtedness to finance any such acquisition would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. In addition, our future results of operations may be adversely affected by the dilutive effect of an acquisition, performance earnouts or contingent bonuses associated with an acquisition. Furthermore, acquisitions may require large, one-time charges and can result in increased debt, contingent liabilities, adverse tax consequences, additional stock-based compensation expenses, and the recording and subsequent amortization of amounts related to certain purchased intangible assets, any of which items could negatively affect our future results of operations. We may also incur goodwill impairment charges in the future if we do not realize the expected value of any such acquisitions.

amortization of amounts related to certain purchased intangible assets, any of which items could negatively affect our future results of operations. We may also incur goodwill impairment charges in the future if we do not realize the expected value of any such acquisitions.

We rely on third-party proprietary and open-source software for our offerings, and our inability to obtain third-party licenses for such software, or obtain them on favorable terms, or any errors or failures caused by such software could adversely affect our business, results of operations and financial condition.

Some of our offerings include software or other intellectual property licensed from third parties. It may be necessary in the future to renew licenses relating to various aspects of these applications or to seek new licenses for existing or new applications. There can be no assurance that the necessary licenses will be available on acceptable terms or under open-source licenses permitting redistribution in commercial offerings, if at all. The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms, could result in delays in product releases until equivalent technology can be identified, licensed or developed, if at all, and integrated into our products and may have a material adverse effect on our business, results of operations and financial condition. In addition, third parties may allege that additional licenses are required for our use of their software or intellectual property, and we may be unable to obtain such licenses on commercially reasonable terms or at all. Moreover, the inclusion in our offerings of software or other intellectual property licensed from third parties on a non-exclusive basis could limit our ability to differentiate our offerings from those of our competitors. In addition, to the extent that our platform depends upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in such third-party software could prevent the deployment or impair the functionality of our platform, delay new feature introductions, result in a failure of our platform and injure our reputation.

Our use of open-source software could subject us to possible litigation or cause us to subject our platform to unwanted open-source license conditions that could negatively impact our sales.

A significant portion of our platform incorporates open-source software, and we will incorporate open-source software into other offerings or products in the future. Such open-source software is generally licensed by its authors or other third parties under open-source licenses. There is little legal precedent governing the interpretation of certain terms of these licenses, and therefore the potential impact of these terms on our business is unknown and may result in unanticipated obligations regarding our products and technologies. If an author or other third party that distributes such open-source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations. In addition, if we combine our proprietary software with open-source software in a certain manner, under some open-source licenses, we could be required to release the source code of our proprietary software, which could substantially help our competitors develop products that are similar to or better than ours.

Our products are based in large part on open source provided under the Apache License 2.0. This license states that any work of authorship licensed under it, and any derivative work thereof, may be reproduced and distributed provided that certain conditions are met. It is possible that a court would hold this license to be unenforceable or that someone could assert a claim for proprietary rights in a program developed and distributed under it. Any ruling by a court that this license is not enforceable, or that open-source components of our products may not be reproduced or distributed, may negatively impact our distribution or development of all or a portion of our products. In addition, at some time in the future it is possible that the open-source cores of our products may be distributed under a different license or the Apache License 2.0 may be modified, which could, among other consequences, negatively impact our continuing development or distribution of the software code subject to the new or modified license.

proprietary rights in a program developed and distributed under it. Any ruling by a court that this license is not enforceable, or that open-source components of our products may not be reproduced or distributed, may negatively impact our distribution or development of all or a portion of our products. In addition, at some time in the future it is possible that the open-source cores of our products may be distributed under a different license or the Apache License 2.0 may be modified, which could, among other consequences, negatively impact our continuing development or distribution of the software code subject to the new or modified license.

We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.

Our offerings are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control. Exports of our offerings must be made in compliance with these laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges, fines which may be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers. Obtaining the necessary authorizations, including any required license, for a particular sale may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities. In addition, changes in our offerings or changes in applicable export or import regulations may create delays in the introduction and sale of our offerings in international markets, prevent our customers with international operations from deploying our offerings or, in some cases, prevent the export or import of our offerings to certain countries, governments or persons altogether. Any change in export or import regulations, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could also result in decreased use of our offerings, or in our decreased ability to export or sell our offerings to existing or potential customers with international operations. Any decreased use of our offerings or limitation on our ability to export or sell our offerings will likely adversely affect our business.

Furthermore, we incorporate encryption technology into certain of our offerings. Various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our offerings or could limit our customers’ ability to implement our offerings in those countries. Encrypted products and the underlying technology may also be subject to export control restrictions. Governmental regulation of encryption technology and regulation of imports or exports of encryption products, or our failure to obtain required import or export approval for our offerings, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our offerings, including with respect to new releases of our offerings, may create delays in the introduction of our offerings in international markets, prevent our customers with international operations from deploying our products throughout their globally-distributed systems or, in some cases, prevent the export of our offerings to some countries altogether.45

regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could also result in decreased use of our offerings, or in our decreased ability to export or sell our offerings to existing or potential customers with international operations. Any decreased use of our offerings or limitation on our ability to export or sell our offerings will likely adversely affect our business.

Furthermore, we incorporate encryption technology into certain of our offerings. Various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our offerings or could limit our customers’ ability to implement our offerings in those countries. Encrypted products and the underlying technology may also be subject to export control restrictions. Governmental regulation of encryption technology and regulation of imports or exports of encryption products, or our failure to obtain required import or export approval for our offerings, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our offerings, including with respect to new releases of our offerings, may create delays in the introduction of our offerings in international markets, prevent our customers with international operations from deploying our products throughout their globally distributed systems or, in some cases, prevent the export of our offerings to some countries altogether.

Moreover, U.S. export control laws and economic sanctions programs prohibit the shipment of certain applications and services to countries, governments and persons that are subject to U.S. economic embargoes and trade sanctions. Any violations of such economic embargoes and trade sanction regulations could have negative consequences, including government investigations, penalties and reputational harm.

If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur significant expenses to enforce our rights.

Our ability to protect our intellectual property affects the success of our business. We rely on trade secret, patent, copyright and trademark laws and confidentiality agreements with our personnel and third parties, all of which offer only limited protection. The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, and our ability to police such misappropriation or infringement is uncertain, particularly in countries outside of the United States. While we have patents and patent applications pending, we may be unable to obtain patent protection for the technology covered in our patent applications or the patent protection may not be obtained quickly enough to meet our business needs. Even if patents are issued from our patent applications, which is not certain, they may be contested, circumvented or invalidated in the future. Moreover, the rights granted under any issued patents, such as in connection with open-source software, may not provide us with proprietary protection or competitive advantages, and, as with any technology, competitors may be able to develop similar or superior technologies to our own now or in the future. In addition, we rely on contractual and license agreements with third parties in connection with their use of our products and technology. There is no guarantee that such parties will abide by the terms of such agreements or that we will be able to adequately enforce our rights.

Detecting and protecting against the unauthorized use of our products, technology and proprietary rights is expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management resources, either of which could harm our business, results of operations and financial condition, and there is no guarantee that we would be successful. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to protecting their technology or intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property, which could result in a substantial loss of our market share.

Claims by others that we or our customers, whose software applications we helped to create, infringe the proprietary technology of such other persons could force us to pay damages or prevent us from using certain technology in our products.

Third parties could claim that our products or technology infringe their proprietary rights. This risk may increase as the number of products and competitors in our market increases and overlaps occur. Any claim of infringement by a third party, even one without merit, could cause us to incur substantial costs defending against the claim, and could distract our management from our business. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages. A judgment could also include an injunction or other court order that could prevent us from offering our products. In addition, we might be required to seek a license for the use of such intellectual property, which may not be available on commercially reasonable terms or at all. Alternatively, we may be required to develop non-infringing technology, which could require significant effort and expense and may ultimately not be successful. We have received, or may in the future receive, notices alleging that we have misappropriated, misused or infringed other parties’ intellectual property rights, including allegations made by our competitors or by non-practicing entities, and, to the extent we gain greater market visibility, we face a higher risk of being the subject of ~~intellectual property infringement assertions. Any of these events could seriously harm our business, results of operations and financial condition.~~

intellectual property infringement assertions. Any of these events could seriously harm our business, results of operations and financial condition.

Third parties may also assert infringement claims against our customers and strategic partners. Any of these claims could require us to initiate or defend potentially protracted and costly litigation on their behalf, regardless of the merits of these claims, because we generally indemnify our customers and strategic partners from claims of infringement of proprietary rights of third parties in connection with the use of our products. If any of these claims succeed, we may be forced to pay damages on behalf of our customers or strategic partners, which could materially affect our results of operations and cash flows.

Our business could be materially adversely affected as a result of war, acts of terrorism, natural disasters or climate change.

War, acts of terrorism and natural disasters, such as an earthquake, may cause damage or disruption to our employees, facilities, customers and partners, which could have a material adverse effect on our business, results of operations or financial condition. Such events may also cause damage or disruption to transportation and communication systems and to our ability to manage logistics in such an environment. These risks may be heightened due to the location of our headquarters in the San Francisco Bay Area, an area known for seismic activity.

Investments made in our growth may not achieve the expected associated benefits on a timely basis or at all.

We have experienced, and may continue to experience, rapid growth and organizational change, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. Additionally, we continue to increase the breadth and scope of our offerings and our operations. To support this growth, and to manage any future growth effectively, we must continue to improve our IT and financial infrastructures, our operating and administrative systems and our ability to manage headcount, capital and internal processes in an efficient manner. Our organizational structure is also becoming more complex as we grow our operational, financial and management infrastructure and we must continue to improve our internal controls as well as our reporting systems and procedures. We intend to continue to invest to expand our business, including investing in research and development and sales and marketing operations, hiring additional personnel, improving our internal controls, reporting systems and procedures, upgrading our infrastructure and increasing our office space. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our results of operation may be adversely affected.

Operating as a public company, including maintaining effective internal control over financial reporting, requires us to incur substantial costs and requires substantial management attention. We expect we will no longer be an emerging growth company after the end of this fiscal year and the additional requirements we must comply with may further strain our resources and divert management’s attention from other business concerns. In addition, our management team has limited experience managing a public company.

45As a public company, we incur substantial legal, accounting and other expenses that we did not incur as a private company, particularly one that had operated as part of a larger corporate organization. For example, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations of the SEC. Stock exchange rules also apply to us. As part of the new requirements, we will need to maintain effective disclosure and internal controls and make changes to our corporate governance practices. Compliance with these requirements is increasing our legal and financial compliance costs and is making some activities more time-consuming.

As a public company, we incur substantial legal, accounting and other expenses that we did not incur as a private company, particularly one that had operated as part of a larger corporate organization. For example, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations of the SEC. Stock exchange rules also apply to us. As part of the new requirements, we will need to maintain effective disclosure and internal controls and make changes to our corporate governance practices. Compliance with these requirements is increasing our legal and financial compliance costs and is making some activities more time-consuming.

Most of our management and other personnel have limited experience managing a public company and preparing public filings. Our management and other personnel will need to divert attention from other business matters to devote substantial time to the reporting and other requirements of being a public company. In particular, we are incurring significant expense and devoting substantial management effort to complying with the requirements of Section 404 of the Sarbanes-Oxley Act when applicable. We will no longer qualify as an emerging growth company after January 31, 2020 and therefore our independent registered public accounting firm will be required to provide this attestation beginning with our Annual Report on Form 10-K for the year ending January 31, 2020, which will require increased costs, expenses and management resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve other aspects of our internal control over financial reporting. We may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.

We are implementing several new systems and process improvements as part of our increased independence from Dell. If these new systems or processes prove ineffective or inadequate, or if we fail to successfully implement them, our business and results of operations may suffer.

We implemented several new systems during the last two years to support our operations, and are continuing to implement technology and process improvements. For example we implemented new systems and processes and added personnel for enterprise resource planning, invoicing, accounts receivable, accounts payable, human capital management and payroll and benefits. We previously received some of these services from Dell and certain of its subsidiaries.

There can be no assurance that our operation of such systems will continue to be successful. We may be unable to implement or operate these systems and processes or add personnel in a timely and cost-effective manner.

We may require additional financing in the future and may not be able to obtain such financing on favorable terms, if at all, which could slow or stop our ability to grow or otherwise harm our business.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, improve our operating infrastructure or acquire complementary businesses and technologies. We financed our operations primarily through equity financings, including our IPO, and before that through the accumulation of a net payable due to Dell, which was subsequently converted into equity, and through funds borrowed under our revolving credit facility prior to us terminating the credit facility on October 22, 2019. We may not be able to obtain additional financing on terms favorable to us, if at all. We may need to engage in equity or debt financings to secure additional funds. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests and the per share value of our Class A common stock could decline. There can be no assurance that we will be able to meet the conditions necessary to obtain ~~loans under our existing revolving credit facility or~~ any future debt financing arrangement. In addition, with respect to debt financing transactions, the holders of debt would have priority over the holders of our common stock, and we may be required to accept terms that restrict our ability to incur additional indebtedness and our ability to operate our business. We may also be required to take other actions that would otherwise be in the interests of the debt holders and force us to maintain specified liquidity or other ratios, any of which could harm our business, financial condition and operating results. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.

Our future quarterly results and key metrics may fluctuate significantly and may be difficult to predict, and if we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline substantially.

Our results of operations, including our revenue, operating expenses and cash flows, as well as our key metrics (including our dollar-based net expansion rate), have fluctuated from quarter to quarter in the past and may continue to fluctuate as a result of a variety of factors, many of which are outside of our control, may be difficult to predict and may or may not fully reflect the underlying performance of our business. Some of the factors that may cause our results of operations to fluctuate from quarter to quarter include:


•	our ability to attract new customers;


•	our ability to retain existing customers and expand their use of our platform;


•	our ability to successfully execute our partner strategy;


•	success of our pricing strategy;


•	changes in customers’ budgets and in the timing of their purchasing decisions;


•	the focus of our sales force;


•	the timing, terms and size of our initial and subsequent transactions with customers;


•	our ability to successfully expand our business internationally;


•	seasonal and end-of-quarter concentration of our transactions;


•	our adoption of a 52- or 53-week fiscal year which may change the date of the last day of each of our fiscal quarters each fiscal year;


•	the timing and success of new products, features and services by us and our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or ecosystem partners;


•	changes in the enterprise software technology landscape that could cause us to increase or accelerate our spending on engineering resources and personnel;


•	customer satisfaction with the functionality, features, performance and pricing of our products and service offerings;


•	significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our software or services;


•	our ability to leverage the synergies between Labs and PCF and increase subscription revenue as a percentage of revenue;


•	consolidation of our customer base;


•	our ability to fully utilize our strategic services resources;


•	potential asset impairments, charges or other expenses;


•	potential claims or litigation;


•	the collectability of receivables;


•	general economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate;


•	the impact of new accounting pronouncements; and


•	foreign currency exchange rate fluctuations.

47We realigned our fiscal calendar to coincide with Dell’s fiscal calendar. This realignment could adversely impact our business and results of operations.

WePrior ~~realigned~~to ~~our~~February 2017, the fiscal calendars for Dell and Pivotal did not align. We reported on a calendar toyear ~~coincide~~basis ~~with~~through December 31, 2016, whereas Dell' reports on a 4-5-5 Fiscal Year. Following Dell’s acquisition of EMC Corporation in September 2016, we changed our fiscal calendar. ~~This~~effective ~~realignment~~January 1, ~~could~~2017 ~~adversely~~so ~~impact~~that our ~~business~~fiscal ~~and~~calendar ~~results~~would align with that of ~~operations~~Dell.

Prior to February 2017, the fiscal calendars for Dell and Pivotal did not align. We reported on a calendar year basis through December 31, 2016, whereas Dell reports on a 4-5-5 Fiscal Year. Following Dell's acquisition of EMC Corporation in September 2016, we changed our fiscal calendar effective January 1, 2017 so that our fiscal calendar would align with that of Dell.

Our new fiscal year is more typical for companies in the retail sector and less typical for software companies. Seasonal buying patterns in the software sector tend to be concentrated in the fourth calendar quarter of the year and, within each quarter, in the last two weeks of that quarter. It is possible that the change in fiscal year could negatively impact the performance of our sales force and the purchasing activities of our customers.

Furthermore, the invoicing of sales may or may not occur before the end of the fiscal quarter as a result of our adoption of a 4-4-5 Fiscal Year. This arises when the last day of a fiscal quarter is not the same date as the last day of the same fiscal quarter from the prior year. This type of change can shift our deferred revenue and billings from one period to another given the change in date of the quarter end, particularly since a relatively large number of sales occur at the end of the quarter.

As a result of our adoption of a 4-4-5 Fiscal Year, the impact of seasonal factors that we have observed in our business may be compounded by end of fiscal quarter or end of fiscal year purchases by our customers and the timing of holiday and vacation periods on our quarterly results. Consequently, it may be difficult to accurately determine the extent to which year-over-year changes in our financial results represent actual changes to business conditions and trends.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

GAAP are subject to interpretation by the Financial Accounting Standards Board (the "“FASB"”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results for periods prior to and subsequent to such change, and could affect the reporting of transactions completed before the announcement of a change.

For example, in May 2014, the FASB issued ASC 606, which superseded the revenue recognition requirements in ASC 605, Revenue Recognition. We adopted this standard and its impact is reflected in our consolidated financial statements, which includes several newly required disclosures. Market practices with respect to these disclosures are still evolving, and securities analysts and investors may not fully understand the implications of our disclosures or how or why they may differ from similar disclosures by other companies. Any additional new accounting standards could have a significant effect on our reported results. If our reported results fall below analyst or investor expectations, our stock price could decline.

We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors.

We are an emerging growth company as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we intend to take advantage of some of the exemptions from the reporting requirements applicable to other public companies. For example, we intend to take advantage of the exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. It is possible that investors will find our Class A common stock less attractive as a result of our reliance on these exemptions. If so, there may be a less active trading market for our Class A common stock and our stock price may be more volatile. We will no longer qualify as an emerging growth company after January 31, 2020, and at that time, we will no longer be permitted to use these reporting exemptions.

Our business is subject to a wide range of laws and regulations, including privacy and data protection laws, and our failure to comply with those laws and regulations could harm our business, results of operations and financial condition.

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, anti-bribery laws, import and export controls, federal securities laws and tax laws and regulations. In certain foreign jurisdictions, these regulatory requirements may be more stringent than those in the United States. These laws and regulations are subject to change over time and thus we must continue to monitor and dedicate resources to ensure continued compliance.

48In addition, our business is subject to regulation by various federal, state and foreign governmental agencies responsible for monitoring and enforcing privacy and data protection laws. The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future, as many new laws and regulations regarding the collection, use and disclosure of personal information have been adopted or are under consideration and existing laws and regulations may be subject to new and changing interpretations. In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, and state breach notification laws. Internationally, many of the jurisdictions in which we operate have established their own data security and privacy legal framework with which we or our customers must comply. We expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the European Union (the “E.U.”) and other jurisdictions, and we cannot yet determine the impacts such future laws, regulations and standards may have on our business or the businesses of our customers.

regulations are subject to change over time and thus we must continue to monitor and dedicate resources to ensure continued compliance.

In addition, our business is subject to regulation by various federal, state and foreign governmental agencies responsible for monitoring and enforcing privacy and data protection laws. The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future, as many new laws and regulations regarding the collection, use and disclosure of personal information have been adopted or are under consideration and existing laws and regulations may be subject to new and changing interpretations. In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, and state breach notification laws. Internationally, many of the jurisdictions in which we operate have established their own data security and privacy legal framework with which we or our customers must comply. We expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the European Union (the "E.U.") and other jurisdictions, and we cannot yet determine the impacts such future laws, regulations and standards may have on our business or the businesses of our customers.

Non-compliance with applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, results of operations and financial condition. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our software.

In addition to government regulation, privacy advocates and industry groups have established or may establish new self-regulatory standards that may place additional burdens on us. Our customers may contractually obligate or expect us to meet voluntary certification or other standards established by such third parties, and if we are unable to meet these standards, it could adversely affect our ability to provide our solutions to certain customers and could harm our business.

We may have exposure to additional tax liabilities, and our operating results may be adversely impacted by higher than expected tax expense.

As a multinational corporation, we are subject to income taxes in both the U.S. and various foreign jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenue and expenses in different jurisdictions and the timing of recognizing revenue and expenses. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. While we believe we have complied with all applicable income tax laws, a governing tax authority could have a different interpretation of the law and assess us with additional taxes.

Our tax expense in the future will depend upon the proportion of our income earned in the U.S. and in jurisdictions with a tax rate lower or higher than the U.S. statutory rate. During October 2014, Ireland announced revisions to its tax regulations that would require foreign earnings of our subsidiaries organized in Ireland to be taxed at higher rates. We will be impacted by the changes in tax laws in Ireland beginning in 2021. It is likely that we will proactively make structural changes in Ireland that may reduce the impact to our future tax rates. There are certain risks associated with structural changes, and we could be subject to higher tax obligations than we have currently estimated. In addition, numerous other countries have recently enacted or are considering enacting changes to tax laws, administrative interpretations, decisions, policies and positions. These changes could adversely affect our tax expense or result in higher cash tax liabilities.

Risks Related to Our Relationship with Dell and VMware

Holders of our Class A common stock have limited ability to influence matters requiring stockholder approval.

Dell owns 175,514,272 shares of our outstanding Class B common stock, which represent approximately 6462.04% of our total outstanding shares of common stock and approximately 94.73% of the combined voting power of both classes of our outstanding common stock (subject to certain exceptions, including with respect to the election of directors, certain actions to convert the Class B common stock and certain actions that require the consent of the holders of the Class B common stock) as of ~~August~~November 21, 2019. Our Class B common stock has ten votes per share, and our Class A common stock, which is our publicly traded stock, has one vote per share, subject to certain exceptions. Moreover, the holders of Class B common stock, voting as a separate class, are entitled to elect at least 80% of the total number of directors that we would have if there were no vacancies on our board of directors at such time. Subject to any rights of any series of preferred stock to elect directors, the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, are entitled to elect our remaining directors with each share of Class A common stock and each share of Class B common stock entitled to one vote per share in any such election. Accordingly, Dell will control the vote to elect all of our directors and to approve or disapprove all other matters submitted to a stockholder vote.

In addition, our amended and restated certificate of incorporation and our master transaction agreement with Dell provide that until such time as Dell (or a successor entity) and its subsidiaries (the "“Dell Entities"”) cease to beneficially own in the aggregate shares of our capital stock representing at least 30% of the votes entitled to be cast by our issued and outstanding capital stock, voting together as a single class with each share of Class B common stock having ten votes and each share of Class A common stock having one vote (the "“Voting Power"”), or no shares of our Class B common stock remain outstanding, the prior affirmative vote of the holders of a majority of the outstanding shares of Class B common stock, voting as a separate class, is required in order to authorize us to take certain actions, including, subject to certain exceptions:


•	adopting or implementing any stockholder rights plan or similar takeover defense measure;


•	entering into a merger, consolidation, business combination or sale of all or substantially all of our assets, or selling, transferring or licensing any of our business, operations or intellectual property for aggregate consideration in excess of $100 million in any calendar-year period;


•	acquiring the stock or assets of another entity in transactions involving in excess of $250 million;


•	issuing any capital stock or stock equivalent except to our subsidiaries, pursuant to the conversion, exercise or exchange of any outstanding stock equivalent or pursuant to our employee benefit or compensation plans;


•	authorizing the aggregate amount of our equity awards to be granted in any fiscal year;


•	taking any actions to dissolve, liquidate or wind up our company;


•	declaring dividends on our stock;


•	entering into any exclusive or exclusionary arrangement with a third party involving, in whole or in part, products or services that are similar to those of Dell;


•	approving, amending or repealing our amended and restated certificate of incorporation or bylaws, or the certificate of incorporation or bylaws of certain of our subsidiaries;


•	acquiring the business, operations, securities or indebtedness of another entity for consideration in excess of $250 million in any calendar-year period;


•	incurring indebtedness in excess of $200 million;


•	approving, modifying or terminating any employee equity or pension plan;


•	entering into any legal settlement resulting in payment by us in excess of $100 million or that would impose limitations on our operations that would reasonably be expected to have a material adverse effect on us; and


•	entering into any other types of transactions involving consideration in excess of $100 million.

If Dell or any other holders of our outstanding Class B common stock do not provide any requisite affirmative vote on matters requiring stockholder approval or any requisite consent, in each case allowing us to conduct such activities when requested, we will not be able to conduct such activities and, as a result, our business and our results of operations may be adversely affected.

Dell has the ability to prevent a change in control transaction and may sell control of Pivotal without benefiting other stockholders.

Dell'’s voting control and the consent rights of holders of our Class B common stock give Dell the ability to prevent transactions that would result in a change in control of Pivotal, including transactions in which holders of our Class A common stock might otherwise receive a premium for their shares over the then-current market price. In addition, Dell is not prohibited from selling a controlling interest in us to a third party and may do so without the approval of the holders of our Class A common stock and without providing for a purchase of any shares of Class A common stock held by persons other than Dell. Accordingly, shares of Class A common stock may be worth less than they would be if Dell did not maintain voting control over us.

Dell'’s ability to control our board of directors may make it difficult for us to recruit independent directors.

Our board of directors is divided into two groups, Group I and Group II. The holders of Class B common stock, voting as a separate class, are entitled to elect our Group I directors, who will constitute at least 80% of the total number of authorized directors. Subject to any rights of any series of preferred stock to elect directors, the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, are entitled to elect our remaining Group II directors, with each share of Class A common stock and each share of Class B common stock entitled to one vote per share in any such election. If at any time or from time to time any Group I directorship is vacant, one of the existing Group I directors to be designated in writing by Dell will be entitled to cast, on all matters upon which a vote or consent of the board of directors is taken, a number of votes equal to one plus the number of vacant Group I directorships then existing, and all other directors will be entitled to cast one vote. There are currently three vacant Group I directorships. Mr. Dell is the initial Group I director entitled to cast one vote for each such vacant directorship and, as a result, is entitled to cast four votes on any matter submitted to a vote of our board of directors. So long as Dell beneficially owns shares of our common stock representing a majority of the votes entitled to be cast in the election of our Group I and Group II directors, Dell can effectively control and direct our board of directors. Further, the interests of Dell and our other stockholders may diverge. Under these circumstances, it may become difficult for us to recruit independent directors.

We engage in related party transactions with Dell and/or VMware that may divert our resources, create opportunity costs and prove to be unsuccessful.

We currently engage in a number of related party transactions with Dell and VMware through our joint marketing and sales of our products and services and our mutually beneficial commercial and go-to-market relationships, and we expect to engage in additional related party transactions with Dell and VMware to leverage the benefits of our strategic alignment, including the proposed merger with VMware and our joint efforts with VMware concerning Pivotal Container Service ("“PKS"”). Our participation in these transactions may prove not to be successful, may create go-to-market complexity, may divert our resources or the attention of our management from other opportunities, and may cause certain of our other vendors and ecosystem partners who compete with Dell and its subsidiaries and VMware to also view us as their competitors. We also cannot predict whether our stockholders and industry or securities analysts will react positively to announcements of new related party transactions.

Dell and VMware may compete with us, which could reduce our market share.

There can be no assurance that Dell or VMware will not compete with us in the future. None of our agreements with Dell or VMware contain any restrictions on their ability to compete with us.

Dell could also assert control over us in a manner which could impede our growth or our ability to enter new markets or otherwise adversely affect our business. Further, Dell could utilize its control over us to cause us to take or refrain from taking certain actions, including entering into relationships with strategic, technology and other marketing partners, enforcing our intellectual property rights or pursuing corporate opportunities or product development initiatives that could adversely affect our competitive position, including our competitive position relative to that of Dell or VMware in markets where we compete with them.

Conflicts of interest may arise because some of our directors and officers own stock or other equity interests in Dell or VMware and hold management positions with Dell or VMware.

Some of our directors and officers own stock or other equity interests in Dell or VMware. In addition, some of our directors are officers or directors of Dell or VMware. Ownership of such equity interests by our directors and officers and the presence of executive officers or directors of Dell or VMware on our board of directors could create, or appear to create, conflicts of interest with respect to matters involving both us and any one of them that could have different implications for any of these investors than they do for us. Provisions of our amended and restated certificate of incorporation address corporate opportunities that are presented to our directors and officers that are also directors of officers of Dell or VMware. We cannot assure you that our amended and restated certificate of incorporation will adequately address potential conflicts of interest or that potential conflicts of interest will be resolved in our favor or that we will be able to take advantage of corporate opportunities presented to individuals who are officers or directors of both us and Dell or VMware. As a result, we may be precluded from pursuing certain advantageous transactions or growth initiatives.

Our inability to resolve in a manner favorable to us any potential conflicts or disputes that arise between us and Dell or its subsidiaries with respect to our past and ongoing relationships may adversely affect our business and prospects.

Potential conflicts or disputes may arise between Dell or its subsidiaries and us in a number of areas relating to our past or ongoing relationships, including:


•	actual or anticipated variations in our quarterly or annual results of operations;


•	tax, employee benefit, indemnification and other matters arising from our relationship with Dell or its subsidiaries;


•	business combinations involving us;


•	our ability to engage in activities with certain ecosystem partners;


•	sales or dispositions by either of Dell or VMware of all or any portion of their beneficial ownership interest in us;


•	the nature, quality and pricing of services Dell or its subsidiaries have agreed to provide us;


•	business opportunities that may be attractive to us and Dell or its subsidiaries;


•	intellectual property or other proprietary rights; and


•	joint sales and marketing activities with Dell or its subsidiaries.

The resolution of any potential conflicts or disputes between us and Dell or its subsidiaries over these or other matters may be less favorable to us than the resolution we might achieve if we were dealing with an unaffiliated party.

The agreements we have entered into with Dell and certain of its subsidiaries are of varying durations and may be amended upon agreement of the parties. The terms of these agreements were primarily determined by Dell or its subsidiaries, and therefore may not be representative of the terms we could obtain on a stand-alone basis or in negotiations with an unaffiliated third party. For so long as we are controlled by Dell, we may not be able to negotiate renewals or amendments to these agreements, if required, on terms as favorable to us as those we would be able to negotiate with an unaffiliated third party.

We are a "“controlled company"” within the meaning of the New York Stock Exchange rules and, as a result, we qualify for and rely on exemptions from certain corporate governance requirements. Accordingly, holders of our Class A common stock will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Dell owns, indirectly through its subsidiaries (including VMware), none of the outstanding shares of our Class A common stock and all of the shares of our Class B common stock, representing 6462.04% of the total outstanding shares of common stock or 94.73% of the combined voting power of the outstanding common stock (subject to certain exceptions, including with respect to the election of directors, certain actions to convert the Class B common stock and certain actions that require the consent of the holders of the Class B common stock). Through its control of shares of common stock representing a majority of the votes entitled to be cast in the election of our Group I and Group II directors, Dell controls the vote to elect all of our directors. As a result, we are a "“controlled company"” within the meaning of the New York Stock Exchange rules. Under these rules, a "“controlled company"” may elect not to comply with certain corporate governance requirements, including the requirements that, within one year of the closing of an initial public offering, a listed company have a:

52• board that is composed of a majority of “independent directors,” as defined under the rules of the New York Stock Exchange;

may elect not to comply with certain corporate governance requirements, including the requirements that, within one year of the closing of an initial public offering, a listed company have a:

• board that is composed of a majority of "independent directors," as defined under the rules of the New York Stock Exchange;


•	compensation committee that is composed entirely of independent directors; and


•	nominating and corporate governance committee that is composed entirely of independent directors.

We are utilizing these exemptions. Our board of directors does not have a majority of independent directors and only our audit committee is subject to requirements under SEC and New York Stock Exchange rules to consist entirely of independent directors, subject to the phase-in rules of the New York Stock Exchange. Accordingly, holders of our Class A common stock do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the New York Stock Exchange.

We utilize our contractual arrangements with our strategic partners to facilitate and expedite a significant portion of our revenue.

Transactions primarily driven by our direct sales force and processed through our strategic partners under our agency agreements with Dell and VMware accounted for 36% and 37% of our total revenue in fiscal 2019 and fiscal 2018, respectively. We rely on these agency agreements to expedite and facilitate the sales of our products and services. Any adverse changes in our joint sales arrangements or the effectiveness of such arrangements with Dell or VMware could have a material impact on our results of operations.

Our stock price could be impacted by the reported results and other statements of Dell.

As the majority owner of our stock, Dell includes our accounts in its consolidated financial statements, subject to non-controlling interest adjustments to eliminate the portion of our accounts that are attributable to other stockholders outside of the Dell consolidated group of companies. Such non-controlling interest adjustments include those pertaining to both Pivotal and other companies for which Dell is a less than 100% owner. Dell does not report Pivotal’s financial information as a standalone segment. Accordingly, any information about Pivotal that is included in Dell'’s financial statements or other public statements is necessarily limited. Nevertheless, the information provided or the conclusions that investors or analysts draw from such information could have an adverse impact on the trading price of our Class A common stock.

Third parties may seek to hold us responsible for liabilities of Dell or VMware, which could result in a decrease in our income.

Third parties may seek to hold us responsible for liabilities of Dell or VMware. Under the original contribution agreements with Dell and VMware pursuant to which Dell and VMware contributed certain of their businesses to us when we were first formed, Dell and VMware agreed to indemnify us for claims and losses relating to liabilities related to Dell’s and VMware’s businesses and not related to our business. The original contribution agreements have no set terms, and these indemnification obligations will continue indefinitely except to the extent limited by law or the mutual agreement of the parties. In addition, under the master transaction agreement, we will indemnify Dell for claims and losses relating to liabilities related to our business. If those liabilities are significant and we are ultimately held liable for them, we cannot assure you that we will be able to recover the full amount of our losses from Dell or VMware.

Dell or VMware’s competitive position in certain markets may constrain our ability to build and maintain partnerships.

Our existing and potential partner relationships may be negatively affected by our relationships with Dell and VMware, our largest stockholders. We do and may partner with companies that compete with Dell or VMware in certain markets. Dell'’s control over us and VMware may affect our ability to effectively partner with these companies. These companies may favor our competitors because of our relationship with Dell and VMware.

53To preserve Dell’s ability to conduct a tax-free distribution of the shares of our Class B common stock that it beneficially owns, we may be prevented from pursuing opportunities to raise capital, acquire other companies or undertake other transactions, which could hurt our ability to grow.

To preserve ~~Dell's~~its ability to ~~conduct~~effect a future tax-free ~~distribution~~spin-off of us, or certain other tax-free transactions involving us, Dell is required to maintain “control” of us within the meaning of Section 368(c) of the Internal Revenue Code, which is defined as 80% of the total voting power and 80% of each class of nonvoting stock. We entered into a tax sharing agreement with Dell, which restricts our ability to issue any stock, issue any instrument that is convertible, exercisable or exchangeable into any of our stock or which may be deemed to be equity for tax purposes, or take any other action that would be reasonably expected to cause Dell to beneficially own stock in us that, on a fully diluted basis, does not constitute “control” within the meaning of Section 368(c) of the Internal Revenue Code. We also agreed to indemnify Dell for any breach by us of the tax sharing agreement. Additionally, under our amended and restated certificate of incorporation and the master transaction agreement, until such time as the Dell Entities cease to beneficially own in the aggregate shares of our capital stock representing at least 30% of the Voting Power or no shares of our Class B common stock ~~that~~remain itoutstanding, ~~beneficially~~the ~~owns~~prior affirmative vote of the holders of a majority of the outstanding shares of Class B common stock, voting as a separate class, is required in order to authorize us to issue stock or other securities, subject to certain exceptions. We also agreed to indemnify Dell for any breach by us of the master transaction agreement. As a result, we may be prevented from ~~pursuing~~raising ~~opportunities~~equity ~~to raise~~ capital, ~~acquire~~or ~~other~~pursuing ~~companies~~acquisitions or ~~undertake~~ other ~~transactions,~~growth ~~which~~initiatives ~~could~~that ~~hurt~~involve ~~our~~issuing ~~ability~~equity tosecurities ~~grow~~as consideration.

To preserve its ability to effect a future tax-free spin-off of us, or certain other tax-free transactions involving us, Dell is required to maintain "control" of us within the meaning of Section 368(c) of the Internal Revenue Code, which is defined as 80% of the total voting power and 80% of each class of nonvoting stock. We entered into a tax sharing agreement with Dell, which restricts our ability to issue any stock, issue any instrument that is convertible, exercisable or exchangeable into any of our stock or which may be deemed to be equity for tax purposes, or take any other action that would be reasonably expected to cause Dell to beneficially own stock in us that, on a fully diluted basis, does not constitute "control" within the meaning of Section 368(c) of the Internal Revenue Code. We also agreed to indemnify Dell for any breach by us of the tax sharing agreement. Additionally, under our amended and restated certificate of incorporation and the master transaction agreement, until such time as the Dell Entities cease to beneficially own in the aggregate shares of our capital stock representing at least 30% of the Voting Power or no shares of our Class B common stock remain outstanding, the prior affirmative vote of the holders of a majority of the outstanding shares of Class B common stock, voting as a separate class, is required in order to authorize us to issue stock or other securities, subject to certain exceptions. We also agreed to indemnify Dell for any breach by us of the master transaction agreement. As a result, we may be prevented from raising equity capital or pursuing acquisitions or other growth initiatives that involve issuing equity securities as consideration.

Our net operating loss carryforwards and other tax assets prior to our initial public offering are generally unavailable for our use.

Since fiscal 2014, our U.S. federal and state net operating losses and research credits and foreign tax credits were fully applied against Dell’s consolidated returns as we were included in the group consolidated U.S. federal and state income tax returns. As a result of our IPO, we left Dell'’s U.S. federal and certain state returns and all tax assets which had been utilized in the group return were reduced to the actual balances we will carry into our separate returns. Certain state net operating loss carryforwards are still reflected on a separate return basis and would be reduced in a similar manner if we were to leave those group returns. We will continue to maintain a valuation allowance for such net operating loss carryforwards and credits. Pursuant to our tax sharing agreement with Dell, we are limited in our ability to carryback net operating losses. Additionally, recently-enacted U.S. federal tax reform may limit our ability to use future net operating losses.

We could be held liable for the tax liabilities of other members of Dell'’s consolidated tax group.

When we become subject to income tax audits for any periods when we were a member of Dell'’s group return, the tax sharing agreement provides that Dell has authority to control the audit and represent Dell'’s and our interests to the tax authority. Accordingly, if we and Dell differ on appropriate responses and positions to take with respect to tax questions that may arise in the course of an audit, our ability to affect the outcome of such audits may be impaired.

Each member of a consolidated group during any part of a consolidated return year is jointly and severally liable for tax on the consolidated return of such year and for any subsequently determined deficiency thereon. Similarly, in some jurisdictions, each member of a consolidated, combined or unitary return for state, local or non-U.S. income tax purposes is jointly and severally liable for the state, local or non-U.S. income tax liability of each other member of the consolidated, combined or unitary return. Accordingly, for any period in which we were included in the Dell consolidated return for U.S. federal income tax purposes or any other consolidated, combined or unitary return of Dell and its subsidiaries, we could be liable in the event that any income tax liability was incurred, but not discharged, by any other member of any such return. In addition, if a distribution by Dell of our Class B common stock fails to qualify as a tax-free spin-off, and neither we nor Dell has breached the tax sharing agreement, we will generally be liable for 50% of any resulting tax.

Accordingly, for any period in which we were included in the Dell consolidated return for U.S. federal income tax purposes or any other consolidated, combined or unitary return of Dell and its subsidiaries, we could be liable in the event that any income tax liability was incurred, but not discharged, by any other member of any such return. In addition, if a distribution by Dell of our Class B common stock fails to qualify as a tax-free spin-off, and neither we nor Dell has breached the tax sharing agreement, we will generally be liable for 50% of any resulting tax.

Risks Related to Ownership of Our Class A Common Stock

An active trading market for our Class A common stock may not continue or be sustained.

Although our Class A common stock is listed on the New York Stock Exchange under the symbol PVTL, we cannot assure you that an active trading market for our Class A common stock will continue on that exchange or elsewhere or that any market will be sustained. Accordingly, we cannot assure you of the likelihood of your ability to sell your shares of Class A common stock when desired, the prices that you may be able to obtain for your shares or the liquidity of any trading market.

The price of our Class A common stock may be volatile, which could cause the value of your investment to decline.

Technology stocks have historically experienced high levels of volatility. The trading price of our Class A common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our Class A common stock. Factors that may cause the market price of our Class A common stock to fluctuate include:


•	announcements of new offerings, services or technologies, relationships with partners, acquisitions or other events by us or our competitors;


•	changes in economic conditions;


•	price and volume fluctuations in the overall stock market from time to time;


•	significant volatility in the market price and trading volume of technology companies in general and of companies in our industry;


•	fluctuations in the trading volume of our shares or the size of our public float;


•	actual or anticipated changes or fluctuations in our results of operations or other key metrics;


•	whether our results of operations or other key metrics meet the expectations of securities analysts or investors;


•	actual or anticipated changes in the expectations of investors or securities analysts;


•	the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;


•	developments or disputes concerning our intellectual property or other proprietary rights;


•	litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;


•	changes in accounting standards, policies, guidelines, interpretations or principles;


•	regulatory developments in the United States, foreign countries or both;


•	major catastrophic events in our domestic and foreign markets;


•	sales of large blocks of our stock; and


•	departures of key personnel.

In addition, if the market for technology stocks or the overall stock market experience a loss of investor confidence, the trading price of our Class A common stock could decline for reasons unrelated to our business, results of operations or financial condition. For example, we are currently the subject of litigation relating to disclosures made in connection with our IPO and with the disclosure of our earnings results for the first quarter of fiscal 2020. The trading price of our Class A common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.

condition. For example, we are currently the subject of litigation relating to disclosures made in connection with our IPO and with the disclosure of our earnings results for the first quarter of fiscal 2020. The trading price of our Class A common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our Class A common stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business, and this could have a material adverse effect on our business, results of operations and financial condition.

We are involved in numerous class action lawsuits and other litigation matters that are expensive and time consuming, and, if resolved adversely, could harm our business, financial condition, or results of operations.

We are involved in numerous lawsuits, including putative class action lawsuits, many of which claim statutory damages. For example, we are currently the subject of multiple putative class action suits relating to disclosures made in connection with our IPO and with the disclosure of our earnings results for the first quarter of fiscal 2020. At this time, it is not reasonably possible to determine the ultimate resolution of, or estimate the liability related to, these matters. Any negative outcome from any such lawsuits could result in payments of substantial monetary damages or fines, and accordingly our business, financial condition, or results of operations could be materially and adversely affected.

to determine the ultimate resolution of, or estimate the liability related to, these matters. Any negative outcome from any such lawsuits could result in payments of substantial monetary damages or fines, and accordingly our business, financial condition, or results of operations could be materially and adversely affected.

There can be no assurances that a favorable final outcome will be obtained in all our cases, and defending any lawsuit is costly and can impose a significant burden on management and employees. Any litigation to which we are a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal or in payments of substantial monetary damages or fines, or we may decide to settle lawsuits on similarly unfavorable terms, which could adversely affect our business, financial conditions, or results of operations.

Sales of a substantial number of shares of our Class A common stock in the public market by our existing stockholders could cause the price of our Class A common stock to decline.

Sales of a substantial number of shares of our Class A common stock in the public market, or the perception that these sales might occur, could depress the price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that sales may have on the prevailing price of our Class A common stock.

All of the shares of common stock issuable upon the exercise of stock options, and the shares reserved for future issuance under our equity incentive plans, are registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance, subject to applicable vesting requirements.

As of ~~August~~November 21, 2019, holders of up to approximately 193.0 million shares of our Class A common stock (including shares issuable upon conversion of Class B common stock) will have rights, subject to certain conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We have also registered the offer and sale of all shares of capital stock that we may issue under our equity compensation plans.

Future sales and issuances of our common stock or rights to purchase common stock could result in additional dilution to our stockholders and could cause the price of our Class A common stock to decline.

We may issue additional Class A or Class B common stock, convertible securities or other equity in the future. We also expect to issue Class A common stock to our employees, directors and other service providers pursuant to our equity incentive plans. Such issuances could be dilutive to investors and could cause the price of our Class A common stock to decline. If we seek to engage in additional equity financing, we may not be able to obtain such financing on favorable terms, if at all. New investors in such issuances could receive rights senior to those of holders of our Class A common stock.

The difference in the voting rights of our classes of capital stock may harm the value and liquidity of our Class A common stock.

Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. The difference in the voting rights of the Class A common stock and the Class B common stock could harm the value of the Class A common stock to the extent that any current or future investor in our common stock ascribes value to the voting rights associated with the ~~Class B common stock. The existence of dual classes of our common stock could result in less liquidity for any such class than if there were only one class of our capital stock.~~

Class B common stock. The existence of dual classes of our common stock could result in less liquidity for any such class than if there were only one class of our capital stock.

The dual class structure of our common stock may adversely affect the trading price of our Class A common stock.

Our Class B common stock has ten votes per share and our Class A common stock, which is our publicly traded stock, has one vote per share subject to certain exceptions, including with respect to the election of directors, certain actions to convert the Class B common stock and certain actions that require the consent of the holders of the Class B common stock. As discussed in "“Risk Factors-Holders of our Class A common stock have limited ability to influence matters requiring stockholder approval,"” these differences in voting rights may adversely affect the market price of our Class A common stock.

In addition, in 2017, FTSE Russell and S&P Dow Jones announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices to exclude companies with multiple classes of shares of common stock from being added to such indices. FTSE Russell announced plans to require new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders, whereas S&P Dow Jones announced that companies with multiple share classes, such as ours, will not be eligible for inclusion in the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. In 2017, MSCI also opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from its ACWI Investable Market Index and U.S. Investable Market 2500 Index. After an 18-month consultation period, MSCI decided to continue to include companies with no-vote and multi-class structures on their indices, although they will also launch a new index series that will include voting rights in the eligibility criteria and construction methodology. We cannot assure you that other stock indices will take a similar approach to MSCI and not follow FTSE Russell and S&P Dow Jones in the future. Under the announced policies, our dual class capital structure would make us ineligible for inclusion in many of these indices and, as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not invest in our stock. These policies are new and it is unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included.

up the S&P Composite 1500. In 2017, MSCI also opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from its ACWI Investable Market Index and U.S. Investable Market 2500 Index. After an 18-month consultation period, MSCI decided to continue to include companies with no-vote and multi-class structures on their indices, although they will also launch a new index series that will include voting rights in the eligibility criteria and construction methodology. We cannot assure you that other stock indices will take a similar approach to MSCI and not follow FTSE Russell and S&P Dow Jones in the future. Under the announced policies, our dual class capital structure would make us ineligible for inclusion in many of these indices and, as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not invest in our stock. These policies are new and it is unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included.

We do not expect to pay any cash dividends for the foreseeable future. Investors may never obtain a return on their investment.

We have never paid dividends to our stockholders. Anyone considering investing in our Class A common stock should not rely on such investment to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of Class A common stock in the foreseeable future. Instead, we currently plan to retain any earnings to maintain and expand our existing operations. In addition, ~~our~~any ~~current revolving credit facility and~~ future debt financing arrangements may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase the Class A common stock.

Delaware law and our amended and restated certificate of incorporation and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors who are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include:

•

the provision that our Class B common stock is generally entitled to ten votes per share, while our Class A common stock is entitled to one vote per share, subject to certain exceptions, enabling Dell, as the beneficial owner of all outstanding shares of our Class B common stock and a majority of the outstanding shares of our Class A common stock, to control the outcome of substantially all matters submitted to a vote of our stockholders, including the election of directors;

•

the provision that, so long as any shares of our Class B common stock are outstanding, the holders of shares of our Class B common stock, voting as a separate class, will be entitled to elect at least 80% of our directors, and that Dell may designate a Group I director that will be entitled to cast, on all matters upon which a vote or consent of the board of directors is taken, a number of votes equal to one plus the number of vacant Group I directorships then existing;

• the provision that any merger, consolidation, business combination or sale of all or substantially all of our assets must be approved by the holders of a majority of the outstanding shares of our Class B common stock until such time (if any) ~~as the Dell Entities cease to beneficially own in the aggregate shares of our capital stock representing at least 30% of the Voting Power or no shares of Class B common stock are outstanding;~~

as the Dell Entities cease to beneficially own in the aggregate shares of our capital stock representing at least 30% of the Voting Power or no shares of Class B common stock are outstanding;


•	certain supermajority thresholds for our stockholders to amend certain provisions of our amended and restated certificate of incorporation or to amend our bylaws;


•	a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

• the provision that a director may be removed only for cause at any time when the Dell Affiliates, as defined in our Amended and Restated Certificate of Incorporation ("“Dell Affiliates"”), do not beneficially own in the aggregate shares of capital stock representing a majority of the votes entitled to be cast to elect such director;

• the provision that any vacancy on the board of directors may be filled only by the affirmative vote of, (i) in the case of any Group I director, a majority of votes entitled to be cast by the remaining Group I directors then in office at any time when the Dell Affiliates do not beneficially own in the aggregate shares of capital stock representing a majority of the votes entitled to be cast to elect any Group I director, and (ii) in the case of any Group II director, a majority of votes entitled to be cast by the remaining directors then in office at any time when the Dell Affiliates do not beneficially own in the aggregate shares of capital stock representing a majority of the votes entitled to be cast to elect any Group II director, in each case, which would prevent other stockholders from being able to fill vacancies on our board of directors;

entitled to be cast by the remaining directors then in office at any time when the Dell Affiliates do not beneficially own in the aggregate shares of capital stock representing a majority of the votes entitled to be cast to elect any Group II director, in each case, which would prevent other stockholders from being able to fill vacancies on our board of directors;


•	the provision that a special meeting of stockholders may be called only by the board chairperson, the vote of a majority of the votes entitled to be cast by the directors then in office or, so long as the Dell Affiliates beneficially own in the aggregate shares of our capital stock representing a majority of the Voting Power, Dell;


•	the prohibition of cumulative voting in the election of directors or any other matters, which would otherwise allow less than a majority of stockholders to elect director candidates;


•	the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;

•

the provision that at any time when the Dell Affiliates do not beneficially own in the aggregate shares of our capital stock representing a majority of the Voting Power, any action required or permitted to be taken by our stockholders at any annual or special meeting may not be effected by a written consent in lieu of a meeting (other than any exercise of the consent rights of the holders of our Class B common stock); and


•	the ability of our board of directors to issue without stockholder approval, other than approval by holders of our Class B common stock exercising their consent rights to provide for the issuance of up to 500,000,000 shares of preferred stock, in one or more series, with terms and conditions, and having rights, privileges and preferences, to be determined by the board of directors.

In addition, we will become subject to Section 203 of the Delaware General Corporation Law at such time (if any) as the Dell Affiliates cease to beneficially own in the aggregate shares of our capital stock representing at least 10% of the Voting Power. This statute prohibits a Delaware corporation listed on a national securities exchange from engaging in a business combination with an interested stockholder (generally a person who, together with its affiliates, owns or within the last three years has owned 15% or more of our voting stock) for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

These provisions in our amended and restated certificate of incorporation and bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for:


•	any derivative action or proceeding brought on our behalf;


•	any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any of our directors, officers or other employees, or stockholders to us or our stockholders;


•	any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware; and


•	any action asserting a claim governed by the internal affairs doctrine.

Any person purchasing or otherwise acquiring or holding any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoing provisions. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds more favorable for disputes with us or with our directors, our officers or other employees, or our other stockholders, including our majority stockholder, which may discourage such lawsuits against us and such other persons. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, results of operations and financial condition.

Risks Related to Our Proposed Acquisition by VMware

On August 22, 2019, we entered into the Merger Agreement with VMware and Merger Sub. The Merger Agreement provides that, subject to the terms and conditions set forth therein, Merger Sub will merge with and into Pivotal, with Pivotal surviving the Merger and becoming a wholly owned subsidiary of VMware.

The announcement and pendency of our proposed merger with VMware could adversely affect our business, financial results and operations.

The announcement and pendency of the proposed acquisition of our Company by VMware could cause disruptions in and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers and employees, which could have an adverse effect on our business, financial results and operations, regardless of whether the proposed merger is completed. In particular, we could potentially lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the proposed acquisition. We could also potentially lose customers, and new customer contracts could be delayed or decreased. In addition, we have diverted, and will continue to divert, significant management resources towards the completion of the transaction, which could adversely affect our business and results of operations.

We are also subject to restrictions on the conduct of our business prior to the consummation of the proposed merger as provided in the Merger Agreement, including, among other things, certain restrictions on our ability to acquire other businesses, sell, transfer or license our assets, hire and retain employees, amend our organizational documents, enter into contracts, incur indebtedness and make capital expenditures. These restrictions could result in our inability to respond effectively to competitive pressures, industry developments and future opportunities and may otherwise harm our business, financial results and operations.

Failure to complete the proposed merger could adversely affect our business and the market price of our common stock.

There is no assurance that the closing of the proposed merger will occur. Consummation of the proposed merger is subject to various conditions, including, among other things, the approval of the Merger Agreement and the proposed merger by the holders of (i) at least a majority of the outstanding shares of Class A common stock not owned by VMware or any of its affiliates, including Dell and EMC LLC, (ii) at least a majority of the outstanding shares of Class A common stock, (iii) at least a majority of the outstanding shares of Class B common stock and (iv) at least a majority of the outstanding shares of Class A and Class B common stock, voting together as a single class. Consummation of the proposed merger is also subject to certain other customary conditions, including, among other things, the absence of laws or judgments prohibiting or restraining the proposed merger. We cannot predict with certainty whether or when any of these conditions will be satisfied. In addition, the Merger Agreement may be terminated under certain specified circumstances, including, but not limited to, a termination of the Merger Agreement by the Company to enter into an agreement for a "“superior proposal".” If the proposed merger is not consummated, our stock price will likely decline as our stock has recently traded at prices based on the proposed per share price for the proposed merger. We will have incurred significant costs, including, among other things, the diversion of management resources, for which we will have received little or no benefit if the closing of the proposed merger does not occur. A failed transaction may result in negative publicity and a negative impression of us in the investment community. The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations and our stock price.

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We are subject to litigation related to the proposed merger.

Six complaints have been filed by putative stockholders against the Company, members our board of directors and the Pivotal Special Committee purporting to assert claims on behalf of the Company’s stockholders relating to the proposed merger. One of the complaints also names VMware and Merger Sub as defendants. If the plaintiffs ultimately prevail in these lawsuits, our insurance coverage may not cover our total liabilities and expenses associated with the lawsuits, as we have deductibles on certain aspects of the coverage. In addition, subject to certain limitations, we are obligated to indemnify our current and former directors, officers and employees in connection with their exercise of fiduciary duties in relation to the evaluation and execution of the proposed merger. Any conclusion of these lawsuits in a manner adverse to the Company could have a material adverse effect on the Company’s business, results of operation, financial condition and cash flows. In addition, the cost to the Company of defending these lawsuits, even if resolved in the Company’s favor, could be substantial. Such lawsuits could also substantially divert the attention of the Company’s management and the Company’s resources in general.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

None.

Use of Proceeds for Initial Public Offering of Class A Common Stock

On April 19, 2018, our Registration Statement on Form S-1 (File No. 333-223872) was declared effective by the SEC for our IPO of Class A common stock, pursuant to which we sold shares of our Class A common stock. There has been no material change in the planned use of proceeds from our IPO as described in the Prospectus.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

Exhibit No.		Description
EXHIBIT 2.1 *	-	Agreement and Plan of Merger, dated as of August 22, 2019, among VMware, Inc., Raven Transaction Sub, Inc., and Pivotal Software, Inc.*
EXHIBIT 31.1 †	-	Rule 13a—14(a) / 15d—14(a) Certifications — Chief Executive Officer.
EXHIBIT 31.2 †	-	Rule 13a—14(a) / 15d—14(a) Certifications — Chief Financial Officer.
EXHIBIT 32.1 ‡	-	Section 1350 Certifications — Chief Executive Officer.
EXHIBIT 32.2 ‡	-	Section 1350 Certifications — Chief Financial Officer.
EXHIBIT 101.INS ‡	-	XBRL Instance Document.
EXHIBIT 101.INS †	-	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
EXHIBIT 101.SCH ‡	-	XBRL Taxonomy Extension Schema Document.
EXHIBIT 101.SCH †	-	Inline XBRL Taxonomy Extension Schema Document.
EXHIBIT 101.CAL ‡	-	XBRL Taxonomy Extension Calculation Linkbase Document.
EXHIBIT 101.CAL †	-	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
EXHIBIT 101.DEF ‡	-	XBRL Taxonomy Extension Definition Linkbase Document.
EXHIBIT 101.DEF †	-	Inline XBRL Taxonomy Extension Definition Linkbase Document.
EXHIBIT 101.LAB ‡	-	XBRL Taxonomy Extension Label Linkbase Document.
EXHIBIT 101.LAB †	-	Inline XBRL Taxonomy Extension Label Linkbase Document.
EXHIBIT 101.PRE ‡	-	XBRL Taxonomy Extension Presentation Linkbase Document.
EXHIBIT 101.PRE †	-	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
EXHIBIT 104 ‡		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
EXHIBIT 104 †	-	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

† Filed with this report.

‡ Furnished herewith.

60* Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K, but a copy will be furnished supplementally to the SEC upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PIVOTAL SOFTWARE, INC.
Dated: September 5, 2019	By:	/s/ Robert Mee
Dated: December 6, 2019	By:	/s/ Robert Mee
		Robert Mee
		Chief Executive Officer and Director(Principal Executive Officer)
Dated: September 5, 2019	By:	/s/ Cynthia Gaylor
Dated: December 6, 2019	By:	/s/ Cynthia Gaylor
		Cynthia Gaylor
		Senior Vice President and Chief Financial Officer(Principal Financial and Principal Accounting Officer)

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Filing Compare · Pivotal Software, Inc.