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Pivotal Software, Inc. (NYSE:PVTL)
Q2 2019 Earnings Conference Call
Sep. 12, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Cheryl and I will be your conference operator today. At this time, I would like to welcome everyone to the Pivotal second quarter fiscal year '19 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

If you would like to ask a question during this time, simply press * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key. Thank you. Helyn Corcos, Vice President of Investor Relations. You may begin your conference.

Helyn Corcos -- Vice President, Investor Relations

Good afternoon and welcome to Pivotal's second quarter fiscal 2019 earnings call. We will be discussing the results and guidance reported in our press release which is posted on our investor relations website. This call is being simultaneously webcast and the replay will be available on our website. Also available on the website are our prepared remarks, supplemental tables, and our updated investor presentation. With me today are Rob Mee, our CEO, and Cynthia Gaylor, our CFO.

During the call, we will make forward-looking statements such as our guidance for the third quarter and fiscal year 2019 related to our business. These statements are based on our current expectations and information available as of today and are subject to a variety of risks, uncertainties, and assumptions. Actual results may differ materially as a result of various risk factors that have been described in our S1 perspective and our periodic filings with the SEC. As a result, we caution you against placing undue reliance on these forward-looking statements.

We assume no obligation to update any forward-looking statements as a result of new information or future events except as required by law. In addition, during today's call, unless otherwise stated, references to our results are provided as a non-GAAP financial measure and are reconciled to our GAAP results, which can be found in the earnings release and supplemental table. With that, let me hand it over to Rob.

Rob Mee -- Chief Executive Officer

Thanks, Helyn. And thank you to everyone for joining us. Pivotal delivered another strong performance in the second quarter. We remained focus on customer success and winning new customers with our differentiated multi-cloud platform. We generated total revenue of 164.4 million up 30% compared to Q2 last year driven by existing customer expansions and new customer wins, which resulted in strong subscription revenue growth of 51%. We exited the quarter with 354 subscription customers, up 19% year-over-year, which underscore the growing customer demand for our platform.

I'd like to start by sharing some perspective on how the software development landscape has evolved and why Pivotal is uniquely positioned to capture this large and growing market opportunity. Five years ago when we started Pivotal, our customer meetings often began with an explanation of why a company should invest in application modernization. Why cloud would be transformative to their business. Why being good at software development would create strategic advantages. Today, companies come to Pivotal fully aware that the world has changed around them.

They no longer arrive asking why but instead they ask how? How can we modernize our development practices? How can we ship new software more frequently? How can we move from legacy to the future? Pivotal offers our cloud data platform developer tools and a unique methodology necessary to modernize enterprises. Organizations that work with us learn to build intimately, deliver continuously, and operate securely and reliably at scale. We've developed a measurement framework that we call the five methods for speed, scalability, security, stability, and savings to help customers quantify the successful outcomes from adopting Pivotal Cloud Foundry and implementing modern agile dev ops and continuous delivery practices learned from Pivotal Labs.

The increased productivity our customers achieve is impressive. We've done a deep dive at the cohort of our largest customers and on average they release new software over 60% faster, are able to spend 35% more time writing code, and spend 90% less time provisioning new environments. Time spent on common operational tasks, like operating system patching, is also reduced by over 90%. And by reducing the OS patching burn, we've found that these clients are much more likely to quickly apply security remediation. We are able to repeatedly deliver these outcomes because our approach is to work side by side with our customers, helping them adopt modern development and operational practices ultimately making these their standard ways of working.

As companies move existing applications to PCF, they see improvement in developer productivity, operational efficiencies, and security. Our application transformation service is designed to help customers assess their existing portfolio and then migrate workloads onto PCF. We believe this leads to accelerated consumption of our software and ultimately results in successful customers who expand their subscriptions with Pivotal often before their original subscription terms have ended. During Q2, we added 15 new customers including Pepsi Co. and AutoZone among others in the federal supply chain management's medical equipment, office supply, and telecom sectors. We continue to have a leading customer net expansion rate of 150% as existing customers grow their usage of PCF, including companies such as Vanguard and TD Ameritrade.

I'd like to discuss three specific examples of the innovative ways our customers are using our platform based on wins in the quarter. First, TD Ameritrade, a leading provider of investment services, expanded their relationship with Pivotal. They started working with Pivotal two years ago to build a new mobile accounting opening application and a new version of their institutional advisor software. After successfully bringing those new applications to market, TD Ameritrade decided to embark on an ambitious application modernization effort in order to deliver better customer experience and support the growth of their business. Significant parts of their application portfolio will now run on Pivotal Cloud Foundry.

Second, we had another significant expansion with Vanguard. They are modernizing their application portfolio to improve time to market, reduce costs, and support international growth. As part of this expansion, Vanguard will deploy PCF on their AWS public cloud environment complementing their existing deployment on their private cloud. By running PCF on both their public and private cloud environments, Vanguard will improve developer productivity and reduce operational complexity.

And third, I'd like to talk about a new logo win we had in Q2 at AutoZone. AutoZone is the nation's leading online and in-store distributor of automotive replacement parts and accessories. They are working with Pivotal to accelerate the development of new applications that will support the growth of their business, including inventory management, credits, and returns, and order management. All of which will be deployed onto PCF. We continue to win new customers and see significant expansion from existing customers because we are delivering the right products and services to help enterprises modernize their most important applications. In doing so, we help customers increase developer velocity, reduce IT costs, and operate more securely.

Customers are excited that we deliver one platform, enabling it consistent application runtime for everything from cloud date of applications to legacy workloads, the databases, and analytics services. We have some exciting product news in Q2 related to Pivotal function service. Over the summer at Google Next, Pivotal joined Google in launching a new open source service project called Knative. Knative layers on top of Kubernetes and provides the building blocks necessary to support a new category of application known as functions. Pivotal believes that functions will be used to build the next generation of event-driven applications to support a variety of new services, including IoT systems.

After making significant contributions to Knative, we will use this along with our own project riff to create Pivotal function service. Like all of our products, PFS will be built with an industrialized open source core and will deliver enterprise many features to ensure high developer productivity, operational efficiency, and security. In addition, we released significant updates to PCF in the quarter. These include new versions of Pivotal application service, or PAS, and Pivotal container service, or PCS. PAS2.2 was released in July. With this release, PAS becomes generally available for the Azure stack platform.

Along with the Dell technologies, Pivotal ready architecture, we now provide two great options for on-prem deployments of our products on modern hyper-converged cloud infrastructures. PKS1.1 was released in June. It includes an update that the latest version of Kubernetes and core enhancements to make deployments easier, more secure, and robust. We've seen Kubernetes early adopters plagued by complexities, especially related to networking and storage. Our development efforts are focused on making PKS the best way for enterprises to run Kubernetes on-prem or in any cloud. On the sales and marketing front, we are investing to address strongly growing customer demand.

We continue to expand our direct sales capacity and are focusing on sealed enablement and enhancing our technical sales talent. Furthermore, a strategic part of shift with Dell technologies and VMware complement our direct sales force. We work with both companies to market and sell our products and services through their direct and channel sales organization. We are encouraged by the early traction we are seeing with PKS in our customer pipeline. Dell, through VXRail, offers Pivotal-ready architecture, a hyper-converged system built ready for PCF, which is attracting significant interest from customers building new private cloud.

In addition, there are three things I'd like to highlight around our partner ecosystems. Global systems integrator HCL expanded its partnership with Pivotal to build a global network of cloud-native labs where enterprises will be able to build new applications as well as modernize existing application for deploying to PCF. HCL lab advocates will be trained by Pivotal across these products and methodologies. Second, Microsoft named Pivotal the Azure consumption partner of the year for the second consecutive year, which is a testament to the great experiences that our customers have had deploying PCF onto the Azure Cloud.

Third, Solstice, a consulting firm specializing in digital innovation, recognized us for our commitment to accelerating digital transformation and fueling growth with their 2018 Partner of the Year award. In summary, we remain excited about Pivotal's opportunity and the business we are building at scale. Our focus on delivering an industrialized open source platform complemented their strategic services to help enterprise modernize their most important applications uniquely positions us to capture a major market opportunity. With that, let me turn it over to Cynthia to review our financials in more detail.

Cynthia Gaylor -- Chief Financial Officer

Thank you, Rob, and welcome everyone. Thanks for joining today. Our second quarter performance was highlighted by continued growth at scale. Total revenue grew 30% year-over-year to $164.4 million driven by the strength of our subscription revenue as existing customers expanded and we grew our new customer footprint. The growing adoption of our PCF platform resulted in subscription revenue growth of 51% year-over-year, $97.5 million. Subscription performance was driven by the expansion of existing customers demonstrated by continued strength in our dollar base net expansion rate of 150% coupled with 19% growth in our customer base relative to Q2 of last year finishing the quarter with a total of 354 subscription customers.

Subscription revenue represented 59% of total revenue compared to 51% a year ago and continues to be the primary driver behind our topline growth, revenue mix shift, and margin improvement. As a reminder, we have a subscription-based business model for our software with PCF at the core of our offering. This provides us with a high level of visibility into future revenue. Our subscription revenue is recognized ratably over the term of our contracts, which are typically between one and three years. We price our software primarily on the number of application workloads or instances a customer expects to deploy on the platform. This means that our revenue growth as existing customers expand the use of our platform and as we add new customers. We generally bill our customers annually in advance, although for our multi-year contracts, some customers pay the full contract amount up front.

Now, turning to services. Services revenue grew 9% to $66.9 million and represented 41% of total revenue compared to 49% a year ago. Our strategic services have been a critical driver of our rapid subscription growth and a strategic differentiator for us. We use labs to acquire new customers who have PCF Affinity while helping existing customers drive success on the platform leading to the expansion of their overall software spend. As we continue to scale, we will leverage partners and system integrators to build virtual services capacity to enable customer success and grow our PCF subscriptions over time. We expect our services revenue to grow in the mid-single digits. Our subscription gross margin was 93%.

We expect subscription growth margin to remain in the low 90% range. Services gross margin was 27%. We expect continued quarterly variability in services gross margin due to the timing of engagements and project seasonality. Total gross margin improved eight points year-over-year to 66% in Q2, primarily driven by the strong subscription revenue growth and the continuing shift of our revenue mix toward subscription. Turning to operating expenses. Sales and marketing expenses were $64 million or 39% of total revenue. We will continue to make investments in sales and marketing to enable the field while adding technical sales talent as we drive customer demand and market adoption.

R&D expense was $41.6 million or 25% of total revenue. R&D remains a key area of investment as we look to deliver compelling products to our customers, stay fresh on the product innovation curb, and continue to differentiate our offerings across the changing market landscape. G&A was $17.3 million or 11% total revenue. Operating loss for the quarter was $14.6 million with a margin loss of 9% improving 15 points from Q2 of last year. We are encouraged by the operating leverage we are seeing across our business even as we invest strategically to drive future growth. However, as we continue to invest in product innovation in field sales, we do not expect to continue to maintain operating loss margins at these levels and expect variability before we reach sustainable break even.

Net loss per share was $0.06 based on 257 million weighted average shares outstanding compared to a loss of $0.13 per share and 216 million shares in Q2 of last year. Now, turning to the balance sheet and cash flow items. We exited Q2 with $672 million in cash and cash equivalents, up $26 million sequentially. Cash flow from operations was $18.4 million and free cash flow was $16.2 million driven by the timing of customer payments associated with multi-year deals paid in advance. Our cash flows have meaningful variability on a quarter-to-quarter basis due to the seasonality of our business, timing associated with our billing cycle, and working capital related items. While we expect continued progress toward sustainable, positive free cash flow, it will not be layer given seasonality trends.

Now turning to RPO, or remaining performance obligations, an indicator of our future revenue streams. RPO provides a comprehensive view and visibility as it represents the estimated value of our build and unbuild subscriptions and services on and off the balance sheet. We finished the quarter with $790 million of RPO and we expect approximately 50% of these obligations to be realized in the next 12 months. As a reminder, we expect seasonality in RPO with variability quarter to quarter from a peak in Q4 relative to the subsequent quarters. Separately, we expect the strength we are seeing in the federal sector to impact RPO as the contract typically has a one-year term, which is shorter than our historical averages.

Short-term and total deferred revenue, which are components of RPO, can vary from quarter to quarter due to contract start dates, timing, and multi-year pre-payments. RPO smooths the lumpiness associated with deferred revenue quarter to quarter. In Q1, start dates and pre-payments worked in our favor while in Q2 we did not experience the same level of favorability. Looking ahead to Q3, we expect short-term and total deferred revenue to be flat to slightly down compared to Q2 in line with historical seasonality. Overall, we are pleased with our second quarter performance and our outlook for the remainder of the year.

I'll conclude by reviewing our non-GAAP guidance for Q3 and for fiscal year 2019. Please note that growth rates are based on the mid-point of the guidance range compared to Q3 or to fiscal year 2018. For the third quarter, we expect subscription revenue to be between $97.5 million and $98.5 million representing growth of approximately 48%. We expect total revenue to be between $163 million and $165 million representing growth of 27%. We expect operating loss to be between $23 million and $22 million representing improvement of 10%. We expect net loss per share of $0.09 to $0.08 based on weighted average shares outstanding of approximately 258 million.

For the fiscal year, we expect subscription revenue to be between $386.5 million and $390.5 million representing growth of approximately 50%. We currently expect total revenue to be in the range of $647 million and $653 million representing growth of 28%. We expect operating loss to be between $86 million and $83 million representing improvement of 34%. We expect net loss per share of $0.36 to $0.34 based on weighted average shares outstanding of approximately 251 million. In closing, I'd like to reiterate that as we focus on customer success, expanding workloads, and growing our new customer footprint on our differentiated multi-cloud platform, we expect to continue to drive subscription growth and operating leverage over time. Thank you again for joining the call. We will not turn it back to the operator to take your questions.

Questions and Answers:

Operator

At this time, I would like to remind everyone; in order to ask a question, press * then the number 1 on your telephone keypad. Our first question comes from the line of Walter Pritchard of Citi. Please go ahead. Your line is open.

Walter Pritchard -- Citi -- Analyst

Hey, thanks, appreciate the color on the RPO versus deferred revenue. I'm wondering if you could just sort of help us understand subscription revenue growth, bookings growth, billings growth, sort of how do those all compare in the quarter and is there any trend this year that we should think about as we're kind of putting together our models and trying to understand how those trend understanding your Q3 commentary, but just sort of the underlying growth drivers and how they might manifest in those metrics?

Cynthia Gaylor -- Chief Financial Officer

I think -- it is a great question, thanks, Walter. I think when you look at the kind of subscription revenue growth, the outperformance in Q2 was driven by favorable expansions as customers increased their workloads and footprint on the platform. In terms of the --, we're driving significant growth at scale with subscription revenue in the quarter and for the year pretty much on any metric.

Billings and deferred revenue and RPO -- as we said in the prepared remarks, RPO we think is a comprehensive metric and an indicator of our future revenue streams because it includes the estimated value of build and unbuild subscriptions and services both on and off the balance sheet so it gives you kind of that future look and it also -- because deferred can be lumpy quarter to quarter due to contract start dates, timing, and multi-year pre-payments, RPO really smooths the variability that you'd see in some of the other balance sheet items and we think it provides visibility into our revenue streams on a go forward basis. Does that answer your question?

Walter Pritchard -- Citi -- Analyst

That does. And then maybe for Rob, just on the services side. I'm wondering; anything tangible that you can talk about in terms of how much of the services work in the ecosystem might be being fulfilled by you versus partners and sort of looking out a year or so how you think that could trend in terms of driving the traction with partners?

Rob Mee -- Chief Executive Officer

Yes. I think within the company and within the sales force and from a Pivotal perspective, as we evolve and our products become more complex and more powerful the services strategy has really been recognized across the company and in the field as something that's very strategic to those outcomes. We don't want to back off on it at all. And yet, as Cynthia I think mentioned, we're planning to grow our services business in low single digits, which means that we're really leaning into the partner strategy.

So in addition to cognizant and Accenture, two big SIs that we mentioned in the past, we've really got a great new partner in HCL, another global SI who are building out their capability very fast. We also have a number of I guess what you'd call more regional, more boutique customers -- excuse me, service providers who are also really expanding their Pivotal relationship and the number of engagements they're taking on with partners.

I mentioned, at times Proficient and Solstice. I think with more and more of our customers and their -- excuse me -- more and more of our partners and their technical resources moving through our platform acceleration lab training, more and more of them doing co-development with us. a lot of our app transformation engagements in particular, which we scaled up over the last year, we're doing a partnership with systems integrators and consulting companies. So I think more and more of that is gonna be done by then. We're actually feeling really bullish about that.

Operator

Your next question comes from the line of Heather Bellini of Goldman Sachs. Please go ahead, your line is open.

Heather Bellini -- Goldman Sachs -- Analyst

Great. I had a couple of questions but I guess most importantly, I wanted to talk about your deferred revenues seasonality in Q2. I hear what you're saying about RPO but if we look back, you have seasonally seen deferred revenue grow sequentially in the second quarter if I look back over the last two years. And I'm most focused on short-term DR, right? This quarter you didn't, so you didn't see normal seasonality but you're telling us to expect the normal sequential decline in Q3 but you appear to be coming off of slightly weaker Q2.

And again, I'm just wondering if you could just walk us through your comment about normal seasonality in Q3 despite the fact that you're not seeing it in Q2 and I guess the related question on top of that is; as you focus more and more deals to services partners, how does this impact your DR performance also? I guess, is the percentage of DR that's driven by services coming down and maybe that's one of the reasons why you had the seasonality change in the second quarter. Thank you.

Cynthia Gaylor -- Chief Financial Officer

Great questions, thanks, Heather. I think a couple of things. So, we do have seasonality in deferred and you noted kind of the trend on Q2 to Q3 of last year, which we're expecting to see again this year. The other piece of it -- so there's seasonality but there's also lumpiness because you have to remember we have 354 subscription customers, our net expansion rate is 150% which is market leading. And when you think about kind of an enterprise software business -- and we talked about this on the Q1 call as well -- but we have fewer customers, our average revenue per customer is at a higher level.

This can accentuate the variability quarter to quarter relative to another type of subscription company that's maybe high volume, lower value on a revenue per customer basis. So there's definitely lumpiness due to the contract start dates, due to the timing, and due to the multi-year pre-payments. And then I think on top of that, as we talked about on the Q1 call, when you look at Q1 going into Q2, in Q1 on the P&L that also flowed to the balance sheet. We had some tailwinds related to favorable end quarter linearity.

So I think what you're seeing is partly related to the dynamic of Q1 to Q2 partly related to the typical seasonality you'd see Q2 to Q3. And then the contract start dates timing and multi-year pre-payments just given where we are in terms of the strategic nature of our customers, what our expansion rates are, and again, timing, contract start dates and multi-year pre-payments associated with that type of customer base.

Heather Bellini -- Goldman Sachs -- Analyst

Okay. And if I could just ask one follow-up in regards to your new customer signings over 50,000. I guess I'm just -- I know the sales force this year is incented with new logos whereas last year they were not. If you look at the number of customers that you added this quarter versus the same period a year ago it's roughly the same. I'm just wondering -- and obviously it was better in Q1, but how do you think about that flywheel starting to build in the back half of the year?

Cynthia Gaylor -- Chief Financial Officer

So I think we are seeing traction as we talked about on the Q1 call. Last year was an expansion year. We wanted to make sure that our strategic customers and their first or second big expansion were successful on the platform and it expanded their footprint. We have the right sales structure in place and incentive structure for the field to start the flywheel or keep the flywheel going on new logos. You have to remember though on the customer count we use a very conservative definition. It's revenue in quarter.

And so, it's not a bookings or a bookings type of metric, it's a revenue metric. And so, we're feeling very good about the number of new customers and new logos. And then maybe I'd ask Rob to maybe talk a little bit just about PKS because I think that has been a driver, not only of new logos coming to Pivotal but also existing customers kind of buying new products, which kind of fit into the business model as well.

Rob Mee -- Chief Executive Officer

We're definitely seeing a lot of uptake in our pipeline for PKS and a lot of our existing customers, jumping on the PKS quite quickly and in fact, now getting it into production, which in its first year of delivery, we've seen some pretty fast uptake. And as we continue to expand the abstractions that we support on the platform, not just containers but soon to come functions with PFS; we see that we're going to attract not just additional workloads from existing customers but new customers coming on who are attracted by those particular abstractions.

We're starting to see a lot of customers coming in wanting to buy PKS, wanting an enterprise Kubernetes solution and we're seeing some momentum now coming from the VMware partnership in the pipeline there as well. So I think in terms of new logos, we're gonna see continued improvement.

Operator

Your next question comes from the line of Sanjit Singh of Morgan Stanley. Please go ahead. Your line is open.

Sanjit Singh -- Morgan Stanley -- Analyst

Hi and thank you for taking my question. I wanted to toggle back to some of the questions around billing to the other line growth rate. If I look to Q1, Q1 was definitely much better than we were all expecting. And Q2 was obviously a little bit short of what we're expecting. So I guess the question here is in terms of framing out what are we thinking the underlying growth rate of the business is?

Cynthia, if you looked at the RPO, could you maybe give us a sense of what RPO grew year-over-year or if that's also a messy metric because of duration or something else. Maybe ACD might be a good number or any sort of metric that you can help us understand given the volatility that we've seen in Q1-Q2 what the underlying growth rate of the business you feel like you're attracting to?

Cynthia Gaylor -- Chief Financial Officer

I think the underlying growth rate of the business -- I mean you can really see in subscription revenue -- that's growing over 50%. So I would point you to that metric as well as the 150% net expansion rate, which is top of the industry, right? And so I would think those two in terms of where we're currently growing at, that's where we're growing and those two are probably the best indicators. Understanding that folks want to look at some of these other metrics, we do think RPO is comprehensive for all the reasons I talked about and it's also a really large number relative to our total revenue.

So if you're thinking about visibility into what the future revenue streams are gonna be, that provides you kind of a sense of coverage if we don't sell anything else. And so again, we think it's a comprehensive metric. We currently don't disclose the growth rate on RPO but going into next year you'll have compares on that.

Sanjit Singh -- Morgan Stanley -- Analyst

Got it. And then as we look into the second half with Q3 typically being a quarter, as you look into your pipeline -- and I think Q4 is a pretty big quarter on a new ASC basis, how are you feeling about your pipeline heading into Q4 in terms of how that pipeline looks today versus maybe this time last year?

Cynthia Gaylor -- Chief Financial Officer

We're feeling good about our second half of the year and our pipeline. As you probably noted, we raised our guidance for Q3 and the full year from where we were coming into the quarter on our last call. And so, we're feeling good about the pipeline. As you know, Q4 is a big quarter for us. and you may remember as well that just over a year ago we were on a calendar year basis.

So our year ended in December 31st and now we're on a fiscal year basis where we are a 4-4-5 calendar. And so that definitely plays into some of the dynamic around quarterly variability as well in terms of when renewals will be coming due on a big Q4 as well as expansions. And so, we're feeling good going into the second half of the year and that's reflected in our guidance that we gave today.

Operator

Your next question comes from the line of Brad Zelnick of Credit Suisse. Please go ahead, your line is open.

Brad Zelnick -- Credit Suisse -- Analyst

Great, thank you and thanks so much for taking the question. Cynthia, I appreciate the limitations of all the various metrics that you report given the lumpiness of your business and the impact of start dates and pre-payments. Just ask the question, which I think has already been asked before but maybe to ask it a little bit differently. What are the metrics you're managing to internally and how did you perform against those metrics in Q2 and how do you feel you're tracking for the full year?

Cynthia Gaylor -- Chief Financial Officer

So, I mean, we track the metrics that we publicly report and then we do have different -- and I talked about this a little bit on the Q1 call -- but different models that we look at that are customer based and field productivity based.

And we triangulate on two or three different models. And so, we're tracking -- I would also just you know, we are pleased with our performance in the first half of the year and we had a strong quarter overall based on the metrics that we do publicly disclose.

Brad Zelnick -- Credit Suisse -- Analyst

Okay, that's helpful. And just maybe one for Rob. Rob, you announced your partnership with Google with plans to incorporate native into PFS. Has that changed your roadmap a little bit for PFS and is there any update on when it becomes available? Thanks.

Rob Mee -- Chief Executive Officer

Yes. To a certain extent, we're dependent on Knative going GA for PFS to go TA so in one sense we have a dependency or an impact there. We are contributors to Knative and we've actually contributed quite a lot to Knative by virtue of our work that we've already done in our open source project riff. We're pretty excited about when that comes out because we think we have the opportunity to define the standard layer for functions based applications much the same way that Spring Boot has defined a standard way to buildmicro services, as well as PFS running on every cloud, means the customer's code is portable, across environments.

And importantly, this architecture can run in a customer data center. And so, we think we've invested the next evolution of functions architecture, a new class of event-driven applications. So we're gonna take our time and make sure that it gets out with all the industrialized open source capabilities that Pivotal usually puts into this in a multi-cloud fashion. But it is coming.

Operator

Your next question comes from the line of Matt Hedberg of RBC Capital Markets. Please go ahead. Your line is open.

Matt Hedberg -- RBC Capital Markets -- Analyst

Hey guys. Thanks for taking my questions. Rob, in your prepared remark, I think Cynthia you mentioned on too. You've talked about some of the success you're seeing with PKS and VX Rail from EMC and VMware. I guess I wanted to dig into that a little bit more. As a benefit to your direct sales force, what're the incentives in place to drive that behavior? Seems like a pretty big leverage point for you guys.

Cynthia Gaylor -- Chief Financial Officer

On PKS specifically, we're really driving our go to market strategy along with VMware -- and Dell technology more broadly. In terms of incentive structure, across the family of companies, there is quota on Pivotal products across those field teams. And on PKS specifically, our field certainly sees that as a way to drive new logos.

And we're seeing the early stages of traction there. You also have to remember PKS was just released a quarter or two ago. So it's early days but we're encouraged by what we're seeing and we're expecting tailwinds coming out of the family in the go to market with VMware and Dell.

Matt Hedberg -- RBC Capital Markets -- Analyst

That's helpful. And then, maybe another one for you as a follow-up. The commentary on billings in short-term in RPO is helpful. I guess I'm curious; in terms of the revenue guide and the revenue outlook, your full year guidance implies I think that Q4 comes down a little bit and I think that by Q2 through Q4 it's about the same revenue dollar amount.

Maybe some of that's conservatism, but is there anything else that we should think about regarding seasonality or rev rec timing? It's total revenue I understand, but anything else you can think about from a seasonality perspective?

Cynthia Gaylor -- Chief Financial Officer

Our business, as you know, Matt, is seasonal quarter to quarter. And you can see that reflected in the year-on-year trends when you look at any individual quarter. We did raise our guidance for Q3 and the full year and I think as you think about how we guide, we're focused on providing reasonable guidance balancing our expectations for growth and the investments we need to make.

And our marketing customer dynamic assumptions r included in the guidance. And we continue to see solid customer demand kind of across the board. When you think about seasonality specifically, I don't think there's anything specifically to kind of draw out. I think the beauty of subscription is we do have quite a bit of revenue visibility and that's reflected in our guidance in some of these metrics we've been talking about and it smooths out some of the lumpiness you might see on the balance sheet specifically.

Operator

Your next question comes from the line of Bhavan Suri of William Blair. Please go ahead your line is open.

Bhavan Suri -- William Blair -- Analyst

Thanks for taking my questions, guys. I guess just one to touch on sort of the breadth of the platform and how customers view it. You sort of got this broad platform -- the punitive platform in PCF but also un-opinionated offering in PKS, which seems expansive the application that we could address. Is that the right way to think about it and then is that how customers are thinking about? or are they picking one of those as sort of a starting point?

Rob Mee -- Chief Executive Officer

That's an interesting question. I would actually say that we're delivering PKS in an opinionated way. With PKS, we are delivering Kubernetes in an opinionated way and really our customers think of PKS as part of the PCF platform and has all of the day two and security and update capabilities that come with the PCF platform that they've known before. And if they don't know that, then they are attracted to those capabilities because what we're seeing in the market is if people are really struggling with the complexity of running Kubernetes at scale.

And so, we think we've got a really good way to do that. I will say that definitely in terms of the potential to expand the ecosystem -- because the Kubernetes ecosystem and the third party data services. For example, are growing very rapidly. PKS expands our ecosystem quite a bit. And I think that's gonna be very helpful going forward.

Bhavan Suri -- William Blair -- Analyst

That's really helpful. One quick one on the non-core products. Obviously, you've got GemFire and Greenplum. We got to sure investors and obviously, we're trying to figure out too. But if you look at those non-core products, like the ones I mentioned, maybe just something about the cumulative size and color of the growth rate. That would be helpful. Just so we sort of understand why those are sort of a drag on the sort of business overall or are they sort of growing inline? Thank you.

Rob Mee -- Chief Executive Officer

We're continuing to see customer demand for our data products but increasingly our customers are wanting to have those data products delivered at a service or a self-service delivery of their data storage. So we've really oriented our roadmap to deliver these technologies using PCF and whether that Pivotal cloud cash or PCC, which is a GemFire based solution reimagined in self-service multi-cloud cashing on PAS.

Or GPDV, which we're working to make available through PKS. We feel that our data products are evolving in that way. And so in that sense, it's kind of difficult to say; are the data products a drag on our cloud platform because they really are part of the cloud platform as a whole. And you'll see a lot of new opportunities with that.

Bhavan Suri -- William Blair -- Analyst

There's a number of data management guide in the cloud, it would be interesting -- I'll take it offline -- but it is interesting that sort of the service deliveries is kind of an interesting way that customers have thought about that approach from let's just shift everything to cloud. Thank you.

Operator

Your next question comes from the line of Raimo Lenschow of Barclays. Please go ahead, your line is open.

Raimo Lenschow -- Barclays -- Analyst

Thanks. Quick question on competition. Now that you have PKS and PCS, how are you -- if you're going through customers -- how are you seeing the competitive field shaping out with you offering what just went out in the market?

Rob Mee -- Chief Executive Officer

I think with PCF really offering a single platform with a consistent application to the runtime for all of these different things, for cloud-native applications and legacy workloads. And one platform essentially that can provide sort of the major workload abstractions apps, containers, and functions, and to do that on any public cloud or on-prem, we feel like we're unmatched in the market by any of the competitive solutions.

Raimo Lenschow -- Barclays -- Analyst

And did it change now that you have PKS? That was my second question, what's the customer's appetite, PCF versus PKS? Are they seeing a complementary? Are they favoring one or the other? How do you see that playing out?

Rob Mee -- Chief Executive Officer

They're definitely complementary. And we see it as expanding our ability to support more of the customer workloads. We have one very large customer -- one of our biggest customers on Pivotal Application Service, what is traditionally been known was PCF, who have also bought into PKS and they're using it as a staging ground and moving a lot of their legacy workloads onto PKS to get the efficiencies of simply moving applications into containers and deploying them on PKS.

And then they're beginning to siphon the most strategic of those applications for PKS onto PAS to get some of the initial benefits of that application abstraction. And so, when we saw that -- I don't know that that was something that we really anticipated but that was a real use case for us. And then we're seeing a lot of that kind of thing in the market.

Raimo Lenschow -- Barclays -- Analyst

Quick question for Cynthia. Everyone earlier on was trying to get to what's the underlying progress of the business. You mentioned the RPO number but obviously, you don't want to give us last year's RPO. Can you talk to that? Is that just the difficulty of going back and reordering all the contracts and stuff like that? Is that kind of the right way to think about it? That's why we don't get that number?

Cynthia Gaylor -- Chief Financial Officer

No. I mean, the numbers are fully audited so it's not an audit issue. It's more we haven't historically disclosed that number and it's not in our S1 on a historical basis. And so, it's just something that we're not disclosing at this time the past quarters.

But as I said, going into next year you'll have a comparative point there and again, the underlying idea behind RPO is it shows you visibility into our future revenue streams and as a multiple of our current revenue, it's quite large.

Operator

Your next question comes from the line of Jennifer Lowe of UBS. Please go ahead. Your line is open.

Jennifer Lowe -- UBS -- Analyst

Great, thank you. I had a question just around the environment and specifically, I think there's an emerging debate around how much of the current robust spending environment is cyclical in nature i.e. it's a good economy and people have some extra dollars to spend versus potentially a more structural acceleration, IT spending that could be multi-year.

And I know it's sort of hard to opine on those things without some history but just based on what you see in your own customer base, as you talk to customers, are they sort of thinking 12 months out in terms of how they purchase and deploy Pivotal and have one app and then they'll see how it goes? Or are you seeing more commitment to multi-year timelines around modernization at this point?

Rob Mee -- Chief Executive Officer

Thanks, Jennifer. Interesting question. I think as we look at the market and the technologies that people are using to solve these kinds of digital transformation initiatives and whatever is up, there's a lot of movement, there's a lot of evolution in competition. But we're definitely seeing that as compared to several years ago, a much greater variety of customers in all segments that are on these initiatives. And thus, essentially becoming a larger market for us. And that is -- obviously it's a little bit difficult to quantify it but just from the perspective of the market getting bigger for us and more customers wanting to become more competitive at building software and building digital products.

It's really great for us. The other part of that is that I think they're recognizing that this is an existential question for them -- becoming good at software. And that is a multi-year very dedicated kind of a movement. They can't just do it halfheartedly or do it piecemeal. They have to really go through and organizational transformation, technology, capability, work force, and increasingly our customers are asking us; how do we do this? And can you guide us through this transformation? It's definitely a multi-year thing and I think that's good for us.

Operator

Your last question comes from the line of Nikolay Beliov of Bank of America. Please go ahead, your line is open.

Nikolay Beliov -- Bank of America -- Analyst

Hi, thanks for taking my question. I was hoping -- it's a question both for Rob and Cynthia to dig into some of the underlying metrics when you look at your sales organization, at least at the high level. What trends are you seeing in terms of self-productivity, hiring plans, sales retention, sale cycles, and win rates against the competition?

Cynthia Gaylor -- Chief Financial Officer

Sure. I might take those in backward order. We're very pleased with our win rates that we've been seeing in the first half of the year and in Q2. We are continuing to make significant investments in the field and across sales and marketing, which includes enabling the field as well as building out technical talent to help support the field and support our customers.

And so, we're continuing to make investments there and you can kind of see that in our P&L. In terms of productivity, we're seeing no real changes in terms of ramping the field although we do have a heightened focus on enabling the new folks as we hire them. And so, that's an area of investment for us for sure.

Nikolay Beliov -- Bank of America -- Analyst

Got it. And Cynthia, just to go back to ask you a little bit more. You ended last fiscal year at 820, first quarter was 800 million, and this quarter was 790 million. is that kind of typical seasonality you've seen in the past with RPO? And RPO builds up as a step like function increase in the second half?

Cynthia Gaylor -- Chief Financial Officer

That's a great question and in the prepared remarks, this quarter but as well as last quarter in the prepared remarks in Q&A, we expect that RPO will be variable quarter to quarter and it will peak in Q4 just given the dynamic and the seasonality around Q4. And then the relative to subsequent quarters Q1 to Q3 of the following year, we would expect RPO to be slightly up to slightly down.

And so when you look at Q2, it performed in line with this. And so, I know RPO is somewhat of a new metric under 606 but again, we really do think it's a comprehensive metric around -- and a forward indicator on our revenue.

Nikolay Beliov -- Bank of America -- Analyst

And just to go back to my very first question. Can you see any changes in the sale cycle?

Cynthia Gaylor -- Chief Financial Officer

No, we haven't seen any changes in the sales cycle. I would say, we are, just as a reminder -- and again, we've talked about this in Q1 as well. We are an enterprise-focused subscription business and we have sales cycles that are typical for large enterprise type of customers who are making strategic purchases.

Operator

I would now like to turn the call back over to the presenters for closing remarks.

Rob Mee -- Chief Executive Officer

Thank you, everyone, for your great questions, I appreciate your time.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 53 minutes

Call participants:

Helyn Corcos -- Vice President, Investor Relations

Rob Mee -- Chief Executive Officer

Cynthia Gaylor -- Chief Financial Officer

Walter Pritchard -- Citi -- Analyst

Heather Bellini -- Goldman Sachs -- Analyst

Sanjit Singh -- Morgan Stanley -- Analyst

Brad Zelnick -- Credit Suisse -- Analyst

Matt Hedberg -- RBC Capital Markets -- Analyst

Bhavan Suri -- William Blair -- Analyst

Raimo Lenschow -- Barclays -- Analyst

Jennifer Lowe -- UBS -- Analyst

Nikolay Beliov -- Bank of America -- Analyst

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