Michael Dell - CEO, Dell Technologies
Less than two months after Dell Technologies revealed it was considering a public offering of common stock or a combination with VMware, Pivotal Software, which is majority-owned by Dell, has filed for an initial public offering (IPO).
As reported by Forbes, the Californian software and services provider filed for an IPO with the United States Securities and Exchange Commission (SEC) on 23 March,
Pivotal was founded in 2013 after being spun out of EMC and VMware and receiving a major investment from GE. Dell EMC and VMware transferred teams and contributed assets and technology to Pivotal that have since become key elements of its cloud-native platform and strategic services.
The IPO filing suggests that Dell Technologies will own, indirectly through its subsidiaries, including VMware, 351,028,548 shares of its outstanding Class B common stock in the company, should the public listing be successful, leaving Dell Technologies as the majority shareholder in the company.
As a result, Dell Technologies will be able to continue to exercise control over all matters requiring approval by its stockholders, including the election of directors and approval of significant corporate transactions.
The SEC filing also breaks out Pivotal’s financials for the past three years, revealing that the company pulled in annual revenues of US$509.4 million for the year ending 2 February 2018, up from the previous year’s US$416.3 million.
At the same time the company posted a US$163.5 million net loss for the year ending 2 February 2018 and a net loss of US$232.5 million the year prior.
“We may not achieve sufficient revenue to attain and maintain profitability,” the IPO filing stated, outlining the potential risks to its business and the industry within which it operates.
“We expect our operating expenses to increase significantly in the future as we hire additional sales, research and development and other employees across functions, increase or make strategic investments, scale relationships with ecosystem partners and open new offices.
“In addition, we expect to incur significant additional legal, accounting and other expenses related to being a public company. As a result of these increased expenses, we will have to generate and sustain increased revenue in order to become profitable in future periods,” it said.
At the same time, however, the filing highlighted the company’s substantial revenue growth over the past few years, with subscription revenue increasing from US$95 million in fiscal 2016 to US$150.0 million in fiscal 2017 and to US$259.0 million in fiscal 2018.
“Subscription revenue has also increased as a percentage of total revenue in each of the last two fiscal years, resulting in an increase of our overall gross profit,” it said. “Our strategy is to continue to increase subscription revenue in general, relative to services, and as a proportion of our total revenue.”
The SEC filing, which is the precursor to an IPO, comes after Dell Technologies committed to exploring new options to increase profitability for its broader business going forward, including a public offering of common stock or a combination with VMware, its publicly-held subsidiary.
As reported in February, Dell is under pressure to boost profitability after its debt-laden acquisition of data storage provider EMC for US$67 billion in 2016 failed to meet financial targets, hurt by intensifying price competition.
