Pivotal IPO? Hell no.

Pivotal IP-NO

They did it! Pivotal filed for an unexpected IPO late on Friday.

What prompted this quick and financially infeasible announcement? Pivotal has been saying they were "IPO-ready from day 1" since 2013, yet they refused to IPO for years.

What happened? Dell happened.

Also in this series...

TOC

What's Dell Got To Do With It?

Dell acquired control over Pivotal and VMware as part of its merge with EMC in 2016.

Fast forward two years and Dell is falling apart. Dell is acting like an aggressive Mitt Romney owned activist hedge fund by cannibalizing everything it owns in an attempt to stay alive at the service of Grand Shithead Extraordinaire Michael Dell.

Dell's financial strategy has been LIQUIDATE ALL THE THINGS, including:

  • March 2016: Dell sold its IT consulting division for $3 billion to NTT Data Corp.
  • April 2016: Dell pushed its SecureWorks division to IPO to raise $100 million (currently trading at 50% IPO price)
  • November 2016: Dell sold Quest and SonicWall to a private equity firm and hedge fund for an estimated $2 billion (that's where all great technology gets developed, right? private hedge funds?)
  • Feb 2018: Dell sells Mozy for $146 million

What's left?

Dell currently owns 80% of VMware and has 97.7% — yes NINETY SEVEN point SEVEN percent — voting power over Pivotal.

Uh oh.

Pivotal's IPO filing even mentions Dell legally pwns them:

Dell Technologies will be able to exercise control over all matters requiring approval by our stockholders, including the election of our directors and approval of significant corporate transactions. Dell Technologies' controlling interest may discourage or prevent a change in control of our company that other holders of our common stock may favor.

Pivotal is filing as an "emerging growth company" under the 2012 JOBS act which grants:

  • exemption from auditor attestation in assessment of internal control over financial reporting
  • reduced disclosure regarding executive compensation

...and says they will remain exempt from those controls until one of:

  • 5 years from IPO
  • grow $1 billion in debt
  • revenue exceeds $1.07 billion
  • over $700 million in stock is held by the public

Highlights

This is a long page. Look at that tiny scroll bar. If you're a skimmer, here are the highlights:

  • For year 2017-2018, Pivotal received almost $50 million from companies with a direct investment in Pivotal itself.
    • Ford, GE, VMware, Dell, and DellEMC, all in total, paid Pivotal $48.7 million for software and services for FY2018 (ending Feb 2018).
  • So what?
  • Well, when your investors are also your customers, the more they buy the more their investment is worth. Seems shady.
  • Plus, Pivotal brags about how, finally, subscription revenue is $9 million more than consulting revenue. That's an easy number to, well let's say, "adjust," if your investors are funding a Choose Your Own Balance Sheet adventure.
  • Pivotal acquired four companies for about $30 million total cash between 2016 and 2017.
  • Pivotal's customer growth rate is a mind blowing (you may want to sit down for this) 4 customers per month on average.
  • IPO filing includes endless PCF caterwauling with a side of Labs-is-Software-Jesus prostration.
  • Everything is unilaterally controlled by Dell, both the company and the person. Pivotal executives have no say over the future of the company. If Michael Dell wants to sell you to a hedge fund so he can buy another $100 million apartment, you're toast.
  • Pivotal has a subsidiary in... Bermuda? What shadiness is going on there?
  • Compensation listed for the 2017-2018 year:
    • Robert Mee: Cash of $1.05 million plus stock (cash value) of $1.6 million
      • ...and you can you believe they let someone literally named "Rob Me" run a company? It's like hello, THERE'S YOUR SIGN.
    • William Cook: Cash of $871k plus stock of $1.6 million
      • ole' billy bob cookie cook
    • No sense in running a broken company to ruin other companies unless you get handed 20x median productive employee comp every year.
  • Patents! Pivotal has f*cking "cloud" patents including, but not limited to:
    • "a method for on-demand resource provisioning for service instances"
    • "a light-weight cloud application platform that includes expansive functionality, but that is easily deployable."
    • "a distributed system can use multiple resource allocators to allocate tasks among a plurality of computing nodes in a distributed system."
    • "a cloud computing platform that processes units of work represented by a sequence of platform independent and resource-agnostic commands"
    • "a notification is activated on the mobile computing device that is based on the trigger."
      • they patented mobile push notifications?
    • "describes a distributed data management system that provides for runtime user-specified eviction criteria for evicting data entries from operational memory."
      • they patented an in-memory LRU cache? Linux is canceled. Pivotal patented a linked list. Everybody can go home now, the genius pair programmers won computing forever.
  • The Pivotal executive severance agreement is hilarious compared to the employee agreement:
    • Executives:
      • 1 year pay lump sum up front (no conditions)
      • pro-rated bonuses
      • 24 months healthcare for their entire family
      • 24 month stock exercise period
    • Employees
      • a couple weeks pay
        • (on the condition you do not get employed again, and you must continue to check in weekly with HR to confirm you are not employed, otherwise they can cancel your severance payments)
      • a couple weeks healthcare
      • no bonuses
      • 90 day stock exercise period

Dude, You're Committing Flagrant Securities Fraud!

Dell controls 97.7% of Pivotal. We can't make sense of this Pivotal IPO nonsense without understanding why Dell is forcing this to happen with such awful Pivotal financials.

Dell is a wretched hive of scum and villainy

In 2010, Dell was fined $100 million by the SEC

In 2010, Dell was fined for committing accounting fraud for 20 consecutive quarters between 2002 and 2006.

As a result of this 20 consecutive quarter, company-wide intentional fraud:

  • Dell paid a $100 million fine for systemic accounting fraud.
  • Michael Dell was personally required to pay a $4 million fine for the related accounting fraud "negligence-based provisions."
  • Dell's previous CEO also personally paid a $4 million fine.
  • Dell's previous CFO also personally paid a $3 million fine (plus an additional $122,000 penalty for ill-gotten gains).
  • A former regional VP personally paid a $50,000 SEC fine.
  • A former assistant controller was "barred from appearing or practicing before the S.E.C. for three years."

Dell escaped relatively unscathed. Their entire business should have been destroyed for engaging in market distorting anti-competitive practices and outright multi-year public fraud:

The Dell case leaves many questions unanswered. Since the SEC found that Dell committed multi-year multiple frauds, why was Dell's case not referred to the Department of Justice for criminal prosecution? And why was Dell treated differently from Enron or WorldCom?

Even after the settlement, Dell did not change its operating procedures:

The board could have informed Michael Dell that if he wanted to stay on as CEO he needed to claw-back his stock option gains attributable to the allegedly fraudulent accounting, but it did not.

The board didn't even announce steps to reform how executive compensation was to be calculated to shift rewards to long-term, real value creation rather than quarterly earnings gamesmanship.

Michael Shithead Dell personally knew and benefited from 20 consecutive quarters of public market fraud and... he still runs companies.

What was the fraud? Intel paid Dell $6 billion to not use AMD chips.

Dell basically kept the $6 billion in a quiet fund to manipulate their quarterly earnings, making it look like they sold more than reality could saturate.

Dell manipulated their public filings to such an extent that in multiple quarters Dell would not have met its earnings goals without secret Intel slush fund money fraudulently poured over the market truth of their low earnings.

Stark Lessons From The Dell Fraud Case

During the period of accounting fraud, Michael Shithead Dell's personal stock value grew in value by $450 million, yet the SEC only fined him $4 million. He got to keep basically all his illegal gains.

Michael Dell has personal experience with lax enforcement of security laws that take years to build a case against you then end up with fines wiping out just 1% of your illegal gains. He has no reason to not continually manipulate and abuse our public markets for his own short sighted gain:

As described by the SEC, Dell's actions were failures of strategy, ethics and leadership resulting from slick behavior, questionable board oversight, a lack of robust public accounting oversight, and absence of meaningful penalties by the capital markets regulatory system.

In fact, compare the fine Michael Dell received to the income he earned based on stock options gains, and it would seem there is actually an upside for a CEO to play earnings games in order to make their businesses look good to Wall Street.

in the decade in which the alleged frauds occurred, earning more than $450 million, most of it from stock option gains. For his role in Dell's earnings game, he was fined $4 million.

Dell was hustling Intel for just enough money so Dell would meet its earnings estimates to ensure that Dell's stock price remains high. And the SEC says Dell consistently misrepresented how it has generated consistent growth numbers resulting in illusory stock values that made possible Michael Dell's astronomical stock option gains.

Dell's ability to meet Wall Street's earnings estimates for 20 straight quarters had little to do with the company's superior strategy, customer value proposition, products, or operating efficiencies. Rather, it was the result of Dell's quarterly requests for more exclusivity protection money from Intel.

SEC's judgment against Dell mentions the mechanism of direct fraud:

The SEC's complaint said Dell had maintained “cookie-jar reserves” using Intel's money that it could dip into to cover any shortfalls in its operating results.

Wow, additional money between companies you can use to improve earnings? With the giant web of Dell/EMC/VMware/Pivotal/DellEMC companies in play now, I imagine you could make any one of those companies look good just by selling to the other companies when your internal numbers aren't adding up as high as you'd like (it's all owned by the same guy without ethical bounds, so who would stop you?).

I'm sure Michael Dell is on top of all the ways you can fraud your way to success with little to no material penalties these days.

Dell received about $6 billion in rebates from Intel between February 2002 and January 2007. In two quarters in 2006, the payments are even supposed to have exceeded Dell's net income.

at their peak, the exclusivity payments from Intel represented 76% of Dell's quarterly operating income, which is a breathtaking figure.

Dell's quarterly earnings fell sharply in 2007 after it ended the arrangement with Intel

Hilariously, Dell has a 2018 press release bragging Dell Inc. Named One of World’s Most Ethical Companies® for 2018. Who else is on such an esteemed list? LinkedIn. Uh... does anybody maintain a "World's Most Ethical Lists of Ethical Companies® for 2018?""

Michael Dell even has a quote in the "most ethical companies of 2018" press release:

"We are honored to be listed among the World's Most Ethical Companies for the fifth consecutive year," said Michael Dell, chairman and CEO, Dell Technologies. "Ethics and integrity matter at Dell. We work hard to earn our customers' trust, improve our communities, and inspire our team members through sound, ethical decision making. Because at Dell, how we do our work is just as important as the results we achieve."

ARE YOU KIDDING ME?

Was anybody held responsible for Michael Dell's 20 quarter long fraud? Not in any material capacity. Michael Dell owns the largest and most expensive estate on Hawaii's billionaire island. He's untouchable.

A recurring theme in Michael Dell's life is: the biggest [blank] ever

  • In 2013, he conducted one of the biggest leveraged private equity buyouts, moving Dell from public to private ($24.4 billion)
  • In 2016, he conducted the "biggest tech deal in history" (at that point) by merging EMC with Dell ($67 billion)
  • He spent the most money ever to buy an apartment in NYC ($100 million)
  • He owns the most expensive and largest estate in Hawaii (~$70+ million)
  • Now there are talks of "tech's biggest deal ever" — AGAIN — after Michael Shithead Dell wants to reverse-merge Dell into VMware to go public without needing to confront regulators directly. Pesky, pesky, regulators with their laws and ethics and oversight requirements.

Shitty ego much?

He bought the most expensive apartment in NYC. He upgrade his Gulfstream V to a full Boeing Dreamliner 787 in 2013. Mother Jones call him "an American Oligarch." He has given over $1 million to Republican politicians. All for the brilliance a single shithead Michael Dell has given the world?

Just look at Michael Dell's vomit-inducing private real estate holdings:

  • NYC, 2014
    • Mr. Dell, 53, spent $100.47 million on a penthouse on New York’s Billionaire’s Row, setting a record for the city’s priciest home purchase
  • Boston, 2017
    • Last year, he snapped up a penthouse seeking $40 million at the Four Seasons Private Residences One Dalton Street in Boston
  • Austin, 1996
    • In 1997, Mr. Dell challenged his $600,000 property-tax bill after county assessors valued the home at $22.5 million, according to legal filings. At the time, Mr. Dell’s attorney said his client had spent about $30 million on improvements to the property. The resolution wasn’t disclosed.
    • In the hills about 12 miles away, Mr. Dell also owns a quirky geometric house known as 6D Ranch. Named after the six members of the family, it is where their Arabian horses are kept, according to a person familiar with the property.
  • 2004, Hawaii
    • Unlike other Hawaiian coastal communities, Kukio is accessible only to homeowners and their guests. Visitors need permission of a homeowner to enter.
    • Mr. Dell’s home appears to be the largest in the community at 18,500 square feet and with seven bedrooms, according to plans.
  • ...and one to grow on
    • Dell also reportedly owns a four-story neoclassical home on the exclusive Caribbean island of Anguilla.

In summary, Dell (both the company and the shithead person) being in charge of one company is toxic, but a web of 8 companies all with interlocking purchase agreements to offset their internal losses by selling to friends? Who can't say no to that?

No wonder products don't have to even work anymore. Revenue can appear out of thin air from back room unaccounted for secret dealings by these dilweeds.

Once More Unto the Breach

Previously on...

Let's go through the filing one outrageous claim at a time.

First, a non-genuine disclaimer appears:

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.

Pivotal doesn't have a "limited operating history" — Pivotal was founded from unwanted scraps of VMware and EMC and a third rate consulting division that already had histories going back 5, 10, even 20 years. Everybody in authority at Pivotal has worked for giants like EMC or VMware before and they know exactly what they are pulling.


Settlement of SEC Proceeding with Mr. Dell

On October 13, 2010, a federal district court approved settlements by Dell Inc. and Mr. Dell. The SEC's allegations with respect to Mr. Dell and his settlement were limited to the alleged failure to provide adequate disclosures with respect to Dell Inc.'s commercial relationship with Intel Corporation prior to fiscal 2008.

Under his settlement, Mr. Dell consented to a permanent injunction against future violations of these negligence-based provisions and other non-fraud based provisions related to periodic reporting.

In addition, Mr. Dell agreed to pay a civil monetary penalty of $4 million, which has been paid in full. The settlement did not include any restrictions on Mr. Dell's continued service as an officer or director of Dell.

lol they have to legally mention how the SEC fined Michael Dell for fraud (no, not fraud, "negligence-based provisions") and technically nobody had to admit wrongdoing (mandated government-legal weasel words ("we pay the fine, but admit no fault and accept no responsibility," blah blah)), so EVERYTHING IS BUTTERFLIES AND LOLLIPOPS!


We have incurred net losses in each year since we were formed

maybe, just maaaaybe, try running business based on value instead of predatory high pressure sales practices where you "incentivize" sales people with yearly million dollar once in a lifetime opportunity commission goals to juice your numbers?


As of February 2, 2018, we had an accumulated deficit of $1,142.6 million

What's a billion dollar accumulated deficit between friends?


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.

no shit sherlock


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.

You haven't been able to penetrate (your word, not mine) existing growth markets, much less future imaginary growth markets you're dreaming about at your washed up rich druggie sexy parties. (though, when all your documents seem to talk about penetrating growth, you've probably got something on your mind all day)


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

A very honest point for once! The adoption of computing will grow, but nobody wants the version you're selling. Not now, not ever.

You can trick them sometimes (see: current customer count), but you can't keep them fooled forever. Fool me once, shame on you. Fool me twice, say hello to the SEC.


Our experience in the markets and our experience selling PCF is relatively limited

Your experience is "limited?" When everybody came from career-long roles at VMware and EMC and Dell? What kind of get-out-of-jail-free card lie is that?


and PCF has been commercially available for a limited period of time.

PCF is an abomination made at VMware 10 years ago ("limited time?"), shoved off onto the dregs at Pivotal, (re)written in Ruby, rewritten in Go, rewritten to work with Docker Inc Docker, rewritten to work with Google Kubernetes—it doesn't originate or expand any original technology. It's a glorified orchestrating shell script.


In addition, while we seek to expand the use of PCF through our Labs projects,

Another truth! Much like how if you hire IBM Global Service consultants, you find you are given suggestions for how buying a million dollars of IBM products can solve all your problems. Pivotal uses the same our-consultants-recommend-our-platforms approach.

You want to hire our consultants to get you into that baller silicon valley state of mind? We'll architect you a pay-per-core PCF nightmare! You'll never escape from our recurring subscription revenue tentacles! Take that, your budget.


we cannot assure you that our offerings will be able to address future advances in technology or requirements of existing customers or potential new customers

Much like how PCF realized nobody used any of their made-on-an-island-at-big-iron-VMware-or-novices-at-Pivotal infrastructure garbage so they quickly reorg around writing interface layers on top of open source projects they don't own. Time to death march all pair programmers to copy the state of the industry you've ignored for years!


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.

Another mega truth in one sentence basically declaring the entire company worthless. Real world acceptance, adoption, and growth will be zero (which sadly can be hidden through vague unregulated investor-investee purchases).

This IPO will be a short seller's dreamscape.


We expect that we will depend on PCF and platform-related services, which includes all of our Labs services and most of our implementation services, to generate the vast majority of our future revenue

Basically: "our revenue depends on products and services we sell?" Genius!


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

You anticipate demand for garbage PCF will grow? Are you willingly insane or just completely self-deluded?

Noting "pricing sensitivities" is a great point to bring up — it matches with the companies I've seen mandating explicit "GET PIVOTAL OUT OF OUR COMPANY" action items because of absurd pricing constructs around per-core recurring subscription billing of microservices just to run software on your own hardware. quite donkeyballs.


We have experienced significant growth in recent periods. Subscription revenue increased from $95.0 million in fiscal 2016 to $150.0 million in fiscal 2017 and to $259.0 million in fiscal 2018.

Those are still incredibly tiny numbers considering you think you are a $3 billion company.

You can't run "software company" as a front for your overpriced body shop consulting forever.

Plus, over the past three years, the economy has been incredibly bubbly. Recent financial performance is based on companies having so much bubble money they give it to random hucksters hoping to make more money.

At the first sign of not-infinite-good-times anymore, Pivotal is dead in the water.


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

no shit sherlock. deja vu.

Note how they mention "expand their use of our platform" — this is an important point! Pivotal has an extremely limited customer base, so their goal is to milk them for all they're worth with recurring subscription pricing, consulting, and increasing fees over time even for using the same services.


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.

Now Pivotal BS reaches the light of day.

They claim Pivotal software requires Pivotal "process." If the software fails, it's your fault for not adopting "silicon valley state of mind agile best practices." Their software is so special, and they so perfect, companies using their software must change entire corporate cultures and approaches to software development.

Basically: you can turn your company into a copy of our interchangeable low value employee butts-in-seats bodyshop consultancy! We will teach you our ways and devalue your development labor for maximal executive mega bonus gains!

Oh, and if a heavy-handed, top-down-from-the-CEO mandate for pair programming and strict 9-6 hours means your employees leave? Well, it turns out Pivotal has an entire consulting division! They'll be happy to rent you some developers (only in pairs though, so you gotta pay twice as much) anytime you like! Just sign here for 4x the cost of a regular employee, and we're good to go.

{{DIGITAL TRANSFORMATION INTENSIFIES}}


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.

More get-out-of-jail-free bullshit. You don't see Amazon complaining about "the rate at which customers will renew their services."

Perhaps you actually mean "We cannot predict at which time customers will realize we are grifters and cease paying outstanding invoices. We also cannot predict if this may happen one at a time or suddenly all at once."


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

Wow, another mega truth right there. Each of those points is basically day to day life under Pivotal sales and development. "Customer dissatisfaction and inability to meet contractual commitments" is Pivotal's silent motto.


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.

Isn't it a huge coincidence customer growth depends on buying more products and services?

After all, it's the only way to succeed.

Gotta buy more products and services from Pivotal so we can digitize our cultural transformation and live that silicon valley state of mind. There's no other way. I even hear that pivotal company spent 4 days at Google in 2004 and still talk about it to this day. They must be some amazeballs developers over there. much ruby go. much fad. so wow.


The purchase of our software and services may be 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.

So your products are 100% optional and customers just buy them for the lulz?

Key phrase here: may not renew or expand their use

When you take the "top down" sales approach of getting CEOs to force their front-line developers to use your software, you are on a timer. A fast timer until the front-line devs realize they are being told to use unstable, unmaintainable, unsupportable platforms and word gets back to the CEO. Then your payments stop.

There is no expand their use growth case in play (unless you count investors who are also customers and, maybe, conveniently, just buying more services when their weak child investment need to cover revenue gaps).


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,

Oh, you mean you are a typical high-pressure, high-touch, perversely-incentivized-sales-culture environment where everything is "GOTTA CLOSE AT THE END OF THE QUARTER TO MAKE OUR NUMBERS!" like a used car dealer?

That's a great way to sell software... in 1998. (it's a dotcom burn!)


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 whose technology and development decisions we may not control.

Basically: "We are not leaders in our field; we are parasites taking the work of others, modifying a little, then profiteering as much as we can before everything goes belly up."


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,

Damage to your reputation and brand? Like when in 2016 someone from HR replied to a fake CEO email and forwarded all employee's personal details to scammers? Those kind of security breaches resulting in damage to your reputation and brand?

Well, I guess that damage was only to employees, not your precious "reputation" and "brand." You can still play security experts for customers while your internal systems are simultaneously concurrent garbage and tire fires.

(security is just "trust google" and "trust slack" right? nothing else can go wrong after you're logged in to those 24/7/365 on 8 devices at a time for mandatory hourly agile video chats.)


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.

mega vomit


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.

oh hai


Regardless of accuracy, unfavorable interpretations of our financial information and other public disclosures could have a negative impact on our stock price.

oh hai


If one or more of the analysts who cover us publish unfavorable research about our business ... the price of our Class A common stock would likely decline.

oh hai


Our success depends largely upon the continued service of our senior management team.

Continued service? Like that one senior executive who just up and took his family to live in Hawaii for a year, gave away all his responsibilities, and became a floating head on the org chart with no reports? Your company will fall apart if you lose that kind of continued service?


To execute our growth plan, we must attract and retain highly skilled employees.

Yeah, about that... accomplished developers never want to work at "We Demand All Employees Be Average With No Specialization Ever (which we shall enforce with MANDATORY RANDOM RE-PARINGS (so you may never learn too much about anything (and will always be imminently interchangeable and replaceable and have no negotiating leverage)))"... Inc.


Further, many of our employees may be able to receive significant proceeds from sales of our Class A common stock in the public markets after this offering, which may reduce their motivation to continue to work for us.

Existing employees who have been told "IPO next quarter" for the past 4 years won't make anything meaningful after taxes and strike prices.


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.

You mean like all the sustained errors, failures, and outages where customers stop paying invoices and abandon your entire ecosystem? Those errors, failures, and outages?

Or do you mean the errors, failures, and outages due to sales people over-promising non-existing solutions and employees not being able to deliver on the promises? Those errors, failures, and outages?


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.

That is utter bullshit. You've been selling subscription services on these platform products since 2014. This is technology. You don't get to build a 20 year "adequate history" to maintain relevance. Just how long is "adequate history" in your world when technology changes every 18 months?


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

cool


Dell Technologies is not prohibited from selling a controlling interest in us to a third party and may do so without the approval of the holders

Pivotal being liquidated off to a crooked boston hedge fund as a tax avoidance maneuver so Michael Dell can keep more cash in his pocket in 3, 2, 1, ...


Dell Technologies will own all of the shares of our Class B common stock. Class B common stock, which is entitled to ten votes per share in the election of directors, Dell Technologies will control the vote to elect all of our directors.

cool


As a result, we will be a "controlled company"

not ominous at all. let jesus Michael Dell, oh he of fined for billions of dollars in public market accounting fraud, take the wheel.


We have entered into a tax sharing agreement with Dell Technologies, 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 Technologies 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.

holy fuckballs

All for One and One for Michael Shithead Dell


We cannot predict the effect that sales may have on the prevailing price of our Class A common stock.

Employees are going to dump all their stock 30 seconds after the lockup period and tank the stock price.


Our Class B common stock [100% owned by Dell] has ten votes per share and our Class A common stock, which is the stock we are offering in this offering, has one vote per share.

our dual class capital structure would make us ineligible for inclusion in any 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.

cool


our subscription customer count has grown rapidly to 275 as of the end of fiscal 2017 and to 319 as of the end of fiscal 2018.

wow, that's a growth rate of 4 customers a month! Fantastic! Four!


Labs is intended to help customers drive successful outcomes in their organizations using our platform as they learn our best practices in cloud-native software development and adapt them to their culture.

This is always the curious point about Labs: they don't run any services. They don't run any production. They've never deployed products live and supported them on call for years. They are by-the-book "best-practices" monkeys trained to make low self esteem purchasing managers feel like they are getting value from "at least somebody else knows what they're doing," which is seldom the case.


We believe there is a positive correlation between Labs projects and the adoption and expansion of PCF subscriptions by our customers.

You don't say! Maybe because your consulting branch pushes your software branch's products at the expense of locking in customers to your dying and oppressively recurring subscription pricing platform?


in part on our ability to leverage the synergies between these complementary offerings including through our strategy

buzzword bingo. yahtzee. shasta.

leverage those complementary synergy strategies. stat


We find that in aggregate those PCF customers that work with Labs expand their PCF annual contracted revenue at a greater rate than those customers who do not work with Labs.

It's called brainwashing your clients. If nobody buys your products unless you physically push them into your catalog, your product isn't viable.


Our strategy is to leverage our strategic services, including Labs, to increase our customers' pace of innovation, usage of our platform and the number of workloads they deploy on PCF as they realize the benefits of our platform.

"Our strategy is to run backdoor marketing under the guise of actually helping customers all while rotating their problems towards solutions we have cookie-cutter answers for based on recurring subscription models."


Fiscal 2018 was the first year in which subscription revenue exceeded our services revenue.

Let's look at subscription vs. services.

2017-2018 showed the first time subscription revenue was more than butts-in-seats consulting revenue, with subscription revenue being 3.32% higher — yes, THREE point THREE TWO percent — than subscription revenue. And they are calling that a huge success.

A company with a billion dollars of investment could find that spare $9 million in the ping pong table cushions to goose the numbers.

Pivotal: always low value, low margin, high priced consulting pretending to be a high margin real software company.


Revenue and Operating Expense Graphical Intermission

(Apologies to mobile viewers for broken graphs on mobile-sized devices! There's some CSS-vs-chart-library brokenness happening we haven't resolved yet.)

In the above chart, the lowest line is if we remove all Pivotal investor purchases of Pivotal software and services ($48.7 million in the most recent FY!) from the subscription revenue category to see what revenue may look like without being propped up by actors who directly benefit from purchasing their own investee's products.

It isn't a completely fair comparison because the revenue is probably split between services and subscriptions, but the split is not noted in the S1, so we assume a 100% subscription bias here (because faking that number benefits Pivotal the most for this filing).

It just looks a bit too convenient after 4 years they took a dive on their consulting revenue and raised subscription revenue to beat bodyshop revenue by 1% just in time to IPO. curiouser and curiouser.


Here we compare money spent on sales and marketing vs money spent on development as outlined in the S1. Development is taking a back seat to sales expenses (commissions, T&E, empty conference marketing, ...).


If we re-arrange the Marketing & Sales vs. Development Expense chart to compare how expenses change each year, we see Marketing & Sales grew by a huge boost in the immediate pre-IPO year 2017 compared to flat growth in money spent on actual product development.

It's easy to fake company growth by pushing heavy on sales.

You can sell anything if push hard enough in the beginning. That is, until word gets out all these high pressure sales guys from a steak-and-strippers startup aren't delivering on their promises. Then the bottom falls right out of the years long scams.

You can only hope to cash out before all your customers start talking to each other and realizing each of your claimed "one time, low probability, never happens to others" errors happens to everybody all the time too.

It's a basic sales-slows-losses tactic from the late 90s: hire a big enough sales team, convince new customers you aren't awful, and before customers realize it, you capture their revenue and sign them to high LTV contracts you can pawn off on acquirers who won't honor any terms except "long term support" by people who never knew how anything worked in the first place.

But I digress.

Now back to your regularly scheduled review...


We are focused on subscription sales of our platform and expect that over time subscription revenue will become a larger percentage of our total revenue as customers continue to adopt PCF

I enjoy a good fantasy too.


We have made and expect to continue to make substantial investments across our business. Specifically, we have increased our total employee base over time

You increased employee count because your employees are all consultants or rented out for 3rd party staff augmentation. You can't run a consulting-as-software grift without renting butts in seats.


expand our sales capacity and further improve sales productivity to drive additional revenue and support the growth of our global customer base.

Yup, always push those sales because nobody actually wants your products. Push and shove and bully then incentive your sales people with a million dollars a year so they break ethical lines as much as possible—JUST GET THOSE NUMBERS UP.


Percentage of Revenue

  • 2015 - 2016: Subscription 34%; Consulting 66%
  • 2016 - 2017: Subscription 36%; Consulting 64%
  • 2017 - 2018: Subscription 51%; Consulting 49%

wow, that sure is mighty convenient you reached a minimal 1% product superiority over low margin consulting. Some may even call it MIGHTY SUSPICIOUS, 'ya know?


Percentage of Revenue from Operating Expense

  • 2015 - 2016: Sales/Marketing 67%; Development 43%; Office 21%
  • 2016 - 2017: Sales/Marketing 46%; Development 37%; Office 15%
  • 2017 - 2018: Sales/Marketing 43%; Development 32%; Office 13%

How do your developers feel creating all your products while Sales gets all the rewards?


Cloud-native software is reshaping businesses across all industries, empowering enterprises to innovate at a higher velocity and become more digital, mobile, data-driven and always-connected.

woah, are you feeling more digital today than yesterday?


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

complementary like a human centipede


Our platform is built to meet the exacting performance, availability, security and management requirements of large organizations.

oh holy shit i just fell out of my chair laughing.

performance and availability? On Pivotal Crap Foundry? nobody has ever equated those before.


First mover in cloud-native transformations. We have been at the forefront of the agile development and cloud-native platform movements

yeah, certainly some kind of movement.


In 2013, DellEMC and VMware contributed Labs and other cloud assets, including Cloud Foundry and Spring, to form Pivotal.

"In 2013, EMC and VMware offloaded all the dysfunctional scraps nobody wanted into a newly quarantined lake to see if it could swim."


use open source while also meeting the exacting performance, availability, security and management requirements of large organizations.

you keep using those words performance and availability. i do not think they mean what you think they mean.


In addition to promoting wide adoption, we have an enterprise sales force that often provides us with access to C-level executives because the decision to use PCF and Labs is often a strategic transformative one.

Another extremely true statement. Pivotal pushes a lot of their garbage by doing CEO buddy building. "Oh, your CEO is on our board and my CEO is on your board? Let's have our CEOs decide how our 22 year old software developers should behave every day."

It's a recipe for everything from disastrous mediocrity to outright multinational organizational failure-at-scale.


We believe that our bottoms-up developer adoption and our top-down strategic access differentiates us from our competitors and helps us gain significant traction in the enterprise.

You think manipulating CEOs into adopting software they'll never use themselves just because you're totes friends and can swap millions of dollars is a good thing?


Our cloud-native software addresses IT spending across the rapidly growing market for public cloud workloads, sometimes referred to as Platform-as-a-service ("PaaS"), and the market for application infrastructure, middleware and development software.

We believe our cloud-native platform opportunity is the aggregate of these two markets, with spending today estimated at over $50 billion.

NUMBERS. DO. NOT. WORK. THAT. WAY.

Overstated imaginary market numbers can't just be added together to say "Look at our $50 billion TAM!!!!"

If anything, rapidly growing as-a-Service is because of cost savings, not because all these companies are dying to grow some San Francisco weirdo's infinitely recurring per-core licensing every time they have a new idea for a novel private microservice.


Our sales efforts are centered on landing and expanding PCF subscriptions.

Cult-like sales jargon slipped into the SEC filing: "Land and expand!"


Sales of our Products and Services to Dell

In December 2015, we entered into a master ordering agreement under which we may from time to time sell to Dell our software and strategic services for its internal use. Revenue recognized from Dell was $3.1 million in fiscal 2018 for sales of our products and services to Dell.

Hmmm.... isn't it curious how you can receive income from your "controlling" parent company and have it count towards your own numbers?

You could run a pretty good accounting fraud that way.


Sales of our Products and Services to DellEMC From time to time, we have sold our software and strategic services to DellEMC for its internal use. Revenue recognized from DellEMC was $9.1 million in fiscal 2016, $8.9 million in fiscal 2017 and $12.2 million in fiscal 2018 for sales of our products and services.

What?

The previous one was Dell, but this one is DellEMC? They are independent accounting entities? And you receive revenue from both? I bet those are really hard customers to sell into!

Look at this DellEMC purchase. Pivotal received $12.2 million for 2017-2018, yet the gap was a tiny $9 million for "Look we have more subscription money than consulting money!!!! this is the single metric making us much viable public biznez!!!"

HMMMM...


Sales of our Products and Services to VMware From time to time, we have sold our software products and professional, software support and other services to VMware for its internal use. Revenue recognized was $5.2 million in fiscal 2016, $8.2 million in fiscal 2017 and $2.1 million in fiscal 2018 for sales of our products and services.

You also receive revenue from VMware? Which DellEMC also owns. As well as owning Pivotal.

Why bother with sales people? Just make a spreadsheet so companies can generate revenue numbers on-demand for everybody in the interconnected Dell corporate colon.

You're selling to companies that literally own you so they materially benefit when you recognize revenue from their own purchases.

it's a clouducken.

mind. kerblown.


Transactions with General Electric In the ordinary course of business, we have sold subscriptions and services to General Electric Company for its internal use. Revenue recognized was $3.6 million for fiscal 2016, $10.8 million for fiscal 2017 and $11.0 million in fiscal 2018.

More great meat here. GE is an investor, and in addition to being an investor, GE also purchased over $24 million in products and services.

It's a nice grift if you can swing it.


Transactions with Ford In the ordinary course of business, we have sold subscriptions and services to Ford Motor Company for its internal use. Revenue recognized was $32.0 million for fiscal 2017 and $31.3 million in fiscal 2018.

Last up, another investor: Ford. Ford has purchased over $63 million in products and services to prop up their own investment so Pivotal financials don't go all liquefaction into the bay.


UNDERWRITERS

  • Morgan Stanley & Co. LLC
  • Goldman Sachs & Co. LLC
  • Citigroup Global Markets Inc.
  • Merrill Lynch, Pierce, Fenner & Smith Incorporated
  • Barclays Capital Inc.
  • Credit Suisse Securities (USA) LLC
  • RBC Capital Markets, LLC
  • UBS Securities LLC
  • Wells Fargo Securities, LLC
  • KeyBanc Capital Markets Inc.
  • William Blair & Company, L.L.C.

wow

at least your liability sure is limited


Current assets

2016 - 2017: Cash $133 million

2017 - 2018: Cash $73 million

They are literally running out of money.

If they keep their existing burn rate for another year, they go bankrupt. No more Pivotal. womp womp.


On September 8, 2017, we entered into a credit agreement with Silicon Valley Bank and certain other banks named therein (the "Credit Agreement") for a senior secured revolving loan facility in an aggregate principal amount not to exceed $100.0 million (the "Revolving Facility").

At February 2, 2018, $20.0 million was outstanding under the Revolving Facility. The weighted average interest rate on the outstanding borrowings under the Revolving Facility was 4.5% for fiscal 2018.

Ah, there you go. They were so afraid of running out of money, they had to take out a $100 million revolving line of credit and they've already used $20 million of it.

Great business model everybody. Congrats, really.


We may also request from time to time, 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,

Oh, make that a $150 million revolving line of credit.


The typical contract term for subscription contracts is one to three years, while the contract term for professional services is generally less than twelve months. Our contracts are non-cancelable over the contractual term.

Non-cancelable? Ha, I've heard some customers really argue otherwise when the products don't work and nothing can be fixed for months at a time.


Sales Commissions 2017 - 2018: $64 million

cool. i bet your developers love seeing sales people take home $64 million a year in bonuses while they don't have any variable compensation structure.

nice incentives you've built to grow stable products.


Acquisitions

During fiscal 2016, we acquired all of the outstanding capital stock of a software and services company based in London. The purchase price, net of cash acquired, was $13.4 million, all of which was paid for in cash consideration.

Also during fiscal 2016, we acquired two businesses for aggregate cash consideration of $8.1 million.

During fiscal 2017, we acquired a business for aggregate cash consideration of $7.8 million.

So, Pivotal acquired three small companies in 2016 for a total of $21+ million and one small company in 2017 for almost $8 million.

Cool use of cash while you're not profitable.


we will be compensated for our losses to the extent those losses generate a tax benefit by reducing the tax liability or increasing the tax benefit carryforward of the Dell group

So, through a Tax Sharing Agreement, Pivotal and Dell get to play a shell game with each other's taxes.

Sounds like a nice grift if you can pull it off.


we now expect to be fully reimbursed $50 million [by Dell] for our fiscal 2018 domestic losses [under the Tax Sharing Agreement].

cool use of financial manipulation where your subsidiary is left holding all the liability. BURN ALL THE BUSINESSES TO GLORIFY MICHAEL DELL


In addition, we had a reduction in our deferred tax assets of $96.1 million due to the U.S. federal rate change from 35% to 21%, which was fully offset by a valuation allowance.

Just some reality-neutral tax trickery.

Republican tax changes reduced Pivotal's ongoing tax liability by almost $100 million, so the previous $100+ million in losses previously allowed to offset future taxes aren't available anymore with the lower tax rate. The change has no impact due to ongoing losses.


SUBSIDIARIES OF PIVOTAL SOFTWARE, INC. Pivotal Group 1 Limited - Bermuda Pivotal Software International - Ireland Pivotal Software International Holdings - Ireland

Bermuda? What shady shit are you pulling?


...and that's the end of our S1 coverage. Remember to smash that subscribe button and join our notification brigade for instant future updates.

Textual Analysis of S1 IPO Filing

Let's break apart all meaning and just look at words of the filing themselves.

Word Counts

The filing has:

  • 61,686 total words
  • 2,737 unique words
  • "Dell" occurs 367 times
  • "DellEMC" occurs 192 times
  • "VMware" occurs 173 times
  • yet "Pivotal" — the name of the IPOing company! — only shows up 138 times

Multiple words per line mean multiple words had the same count.

These are the most popular words (prefixed with total count):

920: stock

633: common

597: $

537: class

517: shares

502: fiscal

454: may

384: 2018

367: dell

363: software

328: services

326: revenue

324: million

319: technologies

318: 2017

311: offering

308: february

303: business

299: customers

277: financial

275: us

259: net

240: table

239: directors

236: tax

231: 2016

228: operations

211: contents

209: platform

207: sales

202: outstanding

201: could

198: %

196: share, pcf

194: development

192: dellemc

185: including

184: consolidated, b

181: public

175: total

174: company

173: vmware

171: certain

168: year

167: securities

163: price

160: time

159: subscription

154: per

152: loss

151: cash, cloud

150: results

148: number

147: statements

145: new

143: assets

141: income

139: preferred, value, subject

138: pivotal

Number of "blockchain" mentions: ZERO!

amateurs.

These counts are for words ending with a full stop, usually meaning end-of-sentence, but sometimes catches abbreviations, as the first word shows.

Multiple words per line mean multiple words had the same count.

Count of sentence ending words:
104: mr.

94: u.s.

82: 2018.

80: stock.

49: customers., inc.

44: basis.

42: software., business.

40: operations., services.

38: platform.

36: us.

33: offering.

29: 2017.

27: prospectus., 2016., technologies.

26: respectively.

24: statements., co.

22: company., directors.

21: non-u.s.

19: time.

18: period.

17: share., applications.

16: condition., revenue., years.

15: vmware., 2013.

14: million., below., s., pcf.

13: affected., infrastructure., information., facility., companies., periods., year., plan., partners.

12: l.p., environments., contract., future., cloud., term.

11: rights., offerings., ms., decline., practices., results., customer., costs., arrangements., date.

10: assets., all., states., dellemc., stockholders.
 no., outstanding., value., products., use., sheets., productivity., code.

8: environment., adoption., presented., jurisdictions., control., subscriptions., 2015.

7: d., industry., agreements., subsidiaries., contracts., agreement., flows., harmed., markets., source., employees., purposes., stockholder., labs., transformation., laws.

6: profitability., market., transactions., development., activities., behalf., l.l.c., releases., clouds., any., efficiency., act., returns., corporation., them., others., organizations., amendment.

5: u.k., obligations., microservices., conditions., officers., group., person., advance., ecosystem., management., investment., change., receivable., commissions., above., risk., organization., full., available., z., factors., manner., quarter., growth., instruments., requirements., consideration., conversion., acquisitions., technology., effectively., part., security., liabilities., vote.

4: price., cagr., resources., always-connected., administrator., reputation., months., footprint., initiatives., obligation., service., allowance., terms., material., acquisition., compete., 2010., distribution., sectors., otherwise., securities., vulnerabilities., earnings., fees., maintenance., method., statement., more., prospects., event., support., sale., relationships., amounts., expenses., risks., marketplace., downtime., businesses.

3: project., permitted., advantage., reform., member., rules., payments., occurs., strategy., openstack., losses., parties., anti-dilutive., party., 2012., gaap., design., sales., law., persons., projects., locations., effective., measures., sec., dell., expansion., team., performance., test., offices., b.v., penalty., loss., receivables., options., personnel., funds., changed., grant., updates., base., expense., successful., dgcl., rent., 158%., methodologies., delivered., systems., thereafter., occur., reporting., 2019., incurred., convertible., plans., capabilities., treaty., countries., return., solutions., dilution., termination., liquidity., vendors., income., 2020., thereof., complementary., model.

Back to Reality / Conclusion: Why IPO?

Basically, this IPO has nothing to do with Pivotal.

This IPO is being forced on Pivotal by Dell in an ongoing attempt to undo Michael Dell's mistakes from 2013-2016.

Dell's private equity buddies need an exit soon plus Dell has grown a pile of metastasized debt over $50 billion (new tax laws are not kind to overwhelming debt, and the one thing Michael Shithead Dell hates most of all is taxes).

CNBC acknowledges:

Dell's $52.5 billion debt pile is expected to become more burdensome this year because the U.S. tax reform enacted last month caps a company's ability to deduct interest expense to 30 percent of its annual earnings before interest, tax, depreciation, and amortization.

Dell is in debt-induced panic. It's acting like an ADHD two year old with restless leg syndrome strapped into a car seat and the next tourist trap is six hours away. Dell needs access to public markets to offload all its bad decisions since 2013.

Dell is sitting on over $50 billion in debt. Michael Shithead Dell's private equity hedge fund partner brohams1 are getting upset they can't cash out their worthless Mike-powered investments. Easiest way out? Exploit public markets to greater-fool your way to moneyhats again.

Heavy debt makes for risky sub-ethical maneuvers.

Dell is teasing insane ideas like a parent-child reverse merger into VMware to use the VMware public stock to take Dell "Stealth Public" without needing to file proper public paperwork (remember: Dell owns 80% of VMware and controls 97.7% of Pivotal voting rights; nobody can stop this).

Dell may be trying to use Pivotal as such a vehicle as well. It's starting to feel like a movie about getting possessed by demons. When Dell floated the reverse-merger idea with VMware, VMware stock tanked. Nobody wants Dell in public markets again. Where's the keymaster?

But, if Dell can spawn a sui generis public security of their own design with extant overwhelming voting control, nobody can stop them from reverse merging into their child and ending up a burden to the public again.

The billionaires are manipulating their way to transnational post-civilization supergods and normals can't do a thing about it except serve our immortal financial overlords with happy happy smiles and our cheap cheap undervalued labor.

Happy end of the world.


Thanks for reaching the end of my initial Pivotal IPO S1 Filing coverage with a side of Michael Shithead Dell updates!

If you are personally overcapitalized and enjoyed this article and research, send $1,000 my way to encourage future articles!

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  1. You often see Dell mentioned in tandem with "Silver Lake Partners" — those are Michael Dell's neighbors on Billionaire Island in Hawaii and they enjoy doing nonsensical BIGGEST BUSINESS FINANCING EVER private equity deals together.