What plagued the stock after its Q2 report was that the company missed analysts' expectations on billings by about $25 mln. Billings is considered to be a better barometer for the company’s current demand than revenue is because it only measures new business won during the period. Also, Sales & Marketing expenses rose sharply by 33% to $70.6 mln, representing 43% of total revenue. That was up from 2Q18's 41.9%, which isn't the most encouraging sign because it indicates that the company is having to invest more aggressively in marketing in order to stimulate similar levels of demand.
That said, its Q2 results featured a number of positives, including a very impressive dollar-based expansion rate.
PVTL provided Q3 guidance amid its September earnings press. Specifically, the company guided for a loss per share of ($0.09)-($0.08) vs. the prior consensus of ($0.09), on revenue of $163-$165 mln (27% growth at mid-point) versus the $163 mln consensus. The current analyst consensus is right in-line with PVTL's outlook at ($0.08) and $164 mln.
Since going public in April, PVTL has issued quarterly results twice, and both times it outperformed the Street's EPS and revenue expectations. And, on both occasions, it offered in-line EPS guidance for the quarter ahead, with revenue guidance that was above estimates.
While bookings came up short of expectations last quarter, a couple other key metrics continue to shine. For instance, gross margin expanded significantly to 62.8% from 55.3% in the year ago period. This was attributable to strong growth in subscription revenue -- which carries higher margins than does service revenue -- and the continuing shift of its revenue mix towards subscriptions. For this quarter, analysts are forecasting that gross margin will continue to improve to 66%.
But the standout metric, in our opinion, continues to be dollar-based net expansion rate, which came in at 150%, virtually in-line with Q1's 156% mark. Essentially, anything over 100% is considered to be strong, so, PVTL is really excelling here. This is an indicator of its customers' expanded use of and demand for its platform, and it shows that customers are finding a lot of value in PVTL's offerings.
Lastly, PVTL has been steadily expanding its subscription customers, which it defines as organizations that have a contract resulting in at least $50K in annual revenue. Last quarter, it added 15 new subscription customers, including PepsiCo and Autozone, bringing its total count to 354.
With shares of PVTL down considerably from the company’s last earnings report, and with the stock having leveled out over the past few weeks while in the face of some extreme market volatility, PVTL may be in a favorable situation ahead of the print tonight. And although billings growth wasn't as strong as hoped for last quarter, PVTL’s other key metrics pointed to business being quite healthy. We will see if that remains the case tonight.