PURE STORAGE, INC., 10-Q filed on 6/11/2020
Quarterly Report
v3.20.1
Cover Page - shares
3 Months Ended
May 03, 2020
Jun. 05, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date May 03, 2020  
Document Transition Report false  
Entity File Number 001-37570  
Entity Registrant Name Pure Storage, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 27-1069557  
Entity Address, Address Line One 650 Castro Street,  
Entity Address, Address Line Two Suite 400  
Entity Address, City or Town Mountain View  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 94041  
City Area Code 800  
Local Phone Number 379-7873  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Title of 12(b) Security Class A Common Stock, $0.0001 par value per share  
Trading Symbol PSTG  
Security Exchange Name NYSE  
Entity Common Stock, Shares Outstanding (in shares)   265,022,124
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Central Index Key 0001474432  
Current Fiscal Year End Date --01-31  
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
May 03, 2020
Feb. 02, 2020
Current assets:    
Cash and cash equivalents $ 347,580 $ 362,635
Marketable securities 926,560 936,518
Accounts receivable, net of allowance of $542 and $619 at the end of fiscal 2020 and the first quarter of fiscal 2021 349,126 458,643
Inventory 39,266 38,518
Deferred commissions, current 39,181 37,148
Prepaid expenses and other current assets 56,154 56,930
Total current assets 1,757,867 1,890,392
Property and equipment, net 136,208 122,740
Operating lease right-of-use assets 116,960 112,854
Deferred commissions, non-current 103,182 102,056
Intangible assets, net 55,556 58,257
Goodwill 37,584 37,584
Restricted cash 15,287 15,287
Other assets, non-current 32,217 25,034
Total assets 2,254,861 2,364,204
Current liabilities:    
Accounts payable 64,817 77,651
Accrued compensation and benefits 64,033 106,592
Accrued expenses and other liabilities 38,881 47,223
Operating lease liabilities, current 29,940 27,264
Deferred revenue, current 365,716 356,011
Total current liabilities 563,387 614,741
Convertible senior notes, net 483,943 477,007
Operating lease liabilities, non-current 95,886 92,977
Deferred revenue, non-current 340,344 341,277
Other liabilities, non-current 14,443 8,084
Total liabilities 1,498,003 1,534,086
Commitments and contingencies (Note 7)
Stockholders’ equity:    
Preferred stock, par value of $0.0001 per share— 20,000 shares authorized at the end of fiscal 2020 and the first quarter of fiscal 2021; no shares issued and outstanding at the end of fiscal 2020 and the first quarter of fiscal 2021 0 0
Class A and Class B common stock, par value of $0.0001 per share—2,250,000 (Class A 2,000,000, Class B 250,000) shares authorized at the end of fiscal 2020 and the first quarter of fiscal 2021; 264,008 and 263,970 Class A shares issued and outstanding at the end of fiscal 2020 and the first quarter of fiscal 2021; 26 26
Additional paid-in capital 2,120,189 2,107,579
Accumulated other comprehensive income 10,173 5,449
Accumulated deficit (1,373,530) (1,282,936)
Total stockholders’ equity 756,858 830,118
Total liabilities and stockholders’ equity $ 2,254,861 $ 2,364,204
v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
May 03, 2020
Feb. 02, 2020
Accounts receivable, allowance $ 619 $ 542
Preferred stock    
Preferred stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Shares authorized (in shares) 20,000,000 20,000,000
Shares issued (in shares) 0 0
Shares outstanding (in shares) 0 0
Common stock    
Shares authorized (in shares) 2,250,000,000 2,250,000,000
Class A    
Common stock    
Par value per share (in dollars per share) $ 0.0001 $ 0.0001
Shares authorized (in shares) 2,000,000,000 2,000,000,000
Shares issued (in shares) 263,969,943 264,008,000
Shares outstanding (in shares) 263,969,943 264,008,000
Class B    
Common stock    
Par value per share (in dollars per share) $ 0.0001 $ 0.0001
Shares authorized (in shares) 250,000,000 250,000,000
v3.20.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
May 03, 2020
Apr. 30, 2019
Revenue $ 367,119 $ 326,700
Cost of revenue 110,294 110,313
Gross profit 256,825 216,387
Operating expenses:    
Research and development 112,446 105,075
Sales and marketing 173,433 166,626
General and administrative 41,125 42,110
Restructuring and other 14,702 0
Total operating expenses 341,706 313,811
Loss from operations (84,881) (97,424)
Other income (expense), net (3,416) (1,816)
Loss before provision for income taxes (88,297) (99,240)
Provision for income taxes 2,297 1,096
Net loss $ (90,594) $ (100,336)
Net loss per share attributable to common stockholders, basic and diluted (in dollars per share) $ (0.34) $ (0.41)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted (in shares) 262,935 245,334
Product    
Revenue $ 246,939 $ 238,741
Cost of revenue 69,285 76,592
Subscription services    
Revenue 120,180 87,959
Cost of revenue $ 41,009 $ 33,721
v3.20.1
Condensed Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended
May 03, 2020
Apr. 30, 2019
Statement of Comprehensive Income [Abstract]    
Net loss $ (90,594) $ (100,336)
Other comprehensive income net of tax:    
Change in unrealized net gain on available-for-sale securities 4,724 1,627
Comprehensive loss $ (85,870) $ (98,709)
v3.20.1
Condensed Consolidated Statements of Stockholders’ Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Restricted Stock Units
Common Stock
Restricted Stock
Common Stock
Beginning balance (in shares) at Jan. 31, 2019   243,524          
Beginning balance at Jan. 31, 2019 $ 737,780 $ 24 $ 1,820,043 $ (338) $ (1,081,949)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Issuance of common stock upon exercise of stock options (in shares)   3,208          
Issuance of common stock upon exercise of stock options 16,789 $ 1 16,788        
Additional Paid-in Capital 61,746   61,746        
Vesting of restricted stock units (in shares)           2,050  
Net issuance of restricted stock (in shares)   1,098          
Restricted stock settlement, taxes paid (5,672)   (5,672)        
Common stock issued under employee stock purchase plan (in shares)   2,973          
Common stock issued under employee stock purchase plan 32,042   32,042        
Other comprehensive income (loss) 1,627     1,627      
Net loss (100,336)       (100,336)    
Ending balance (in shares) at Apr. 30, 2019   252,853          
Ending balance at Apr. 30, 2019 743,976 $ 25 1,924,947 1,289 (1,182,285)    
Beginning balance (in shares) at Feb. 02, 2020   264,008          
Beginning balance at Feb. 02, 2020 830,118 $ 26 2,107,579 5,449 (1,282,936)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Issuance of common stock upon exercise of stock options (in shares)   2,175          
Issuance of common stock upon exercise of stock options 9,388   9,388        
Additional Paid-in Capital 58,694   58,694        
Vesting of restricted stock units (in shares)           2,525  
Cancellation of restricted stock (in shares)             (230)
Tax withholding on vesting of restricted stock (in shares)   (134)          
Restricted stock settlement, taxes paid (1,374)   (1,374)        
Common stock issued under employee stock purchase plan (in shares)   1,585          
Common stock issued under employee stock purchase plan 16,021   16,021        
Repurchase of common stock (in shares)   (5,959)          
Repurchase of common stock (70,119)   (70,119)        
Other comprehensive income (loss) 4,724     4,724      
Net loss (90,594)       (90,594)    
Ending balance (in shares) at May. 03, 2020   263,970          
Ending balance at May. 03, 2020 $ 756,858 $ 26 $ 2,120,189 $ 10,173 $ (1,373,530)    
v3.20.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
May 03, 2020
Apr. 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES    
Net loss $ (90,594) $ (100,336)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 15,133 21,060
Amortization of debt discount and debt issuance costs 6,936 6,490
Stock-based compensation expense 58,694 62,157
Other 1,705 (811)
Changes in operating assets and liabilities, net of effects of acquisition:    
Accounts receivable, net 109,441 67,299
Inventory (1,370) (2,023)
Deferred commissions (3,159) 1,716
Prepaid expenses and other assets (6,298) (7,298)
Operating lease right-of-use assets 6,706 6,209
Accounts payable (14,294) (25,807)
Accrued compensation and other liabilities (49,643) (43,993)
Operating lease liabilities (6,926) (6,034)
Deferred revenue 8,772 28,013
Net cash provided by operating activities 35,103 6,642
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchases of property and equipment (23,782) (24,296)
Acquisition, net of cash acquired 0 (47,881)
Purchases of marketable securities (98,161) (312,859)
Sales of marketable securities 17,657 22,344
Maturities of marketable securities 95,375 164,139
Net cash used in investing activities (8,911) (198,553)
CASH FLOWS FROM FINANCING ACTIVITIES    
Net proceeds from exercise of stock options 9,275 16,761
Proceeds from issuance of common stock under employee stock purchase plan 16,021 32,042
Proceeds from borrowing 4,950 0
Repayment of debt assumed from acquisition 0 (11,555)
Tax withholding on vesting of restricted stock (1,374) (5,672)
Repurchases of common stock (70,119) 0
Net cash provided by (used in) financing activities (41,247) 31,576
Net decrease in cash, cash equivalents and restricted cash (15,055) (160,335)
Cash, cash equivalents and restricted cash, beginning of period 377,922 463,813
Cash, cash equivalents and restricted cash, end of period 362,867 303,478
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD    
Cash, cash equivalents and restricted cash, end of period 362,867 303,478
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION    
Cash paid for interest 359 359
Cash paid for income taxes 2,376 1,640
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION    
Property and equipment purchased but not yet paid $ 8,274 $ 11,595
v3.20.1
Business Overview
3 Months Ended
May 03, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business Overview Business Overview
Organization and Description of Business
Pure Storage, Inc. (the Company, we, us, or other similar pronouns) was originally incorporated in the state of Delaware in October 2009 under the name OS76, Inc. In January 2010, we changed our name to Pure Storage, Inc. We are headquartered in Mountain View, California and have wholly owned subsidiaries throughout the world.
Data is foundational to our customers' digital transformation and we are focused on delivering innovative and disruptive technology and data storage solutions that enable customers to maximize the value of their data. We started with the vision of making flash storage available to enterprise organizations everywhere and established an entirely new customer experience including our innovative Evergreen Storage subscription that radically simplified storage ownership and reduced total cost of ownership for our customers.
Our solutions serve data workloads on-premise, in the cloud, or hybrid environments and include mission-critical production, test/development, analytics, disaster recovery, and backup/recovery.
v3.20.1
Basis of Presentation and Summary of Significant Accounting Policies
3 Months Ended
May 03, 2020
Accounting Policies [Abstract]  
Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
In September 2019, we adopted a 52/53 week fiscal year consisting of four 13-week quarters ending on the first Sunday after January 30, which for fiscal 2020 was February 2, 2020 and for fiscal 2021 is January 31, 2021. The first quarter of fiscal 2020 and 2021 ended on April 30, 2019 and May 3, 2020. Unless otherwise stated, all dates refer to the Company’s fiscal year and fiscal periods.
The condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Unaudited Interim Consolidated Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and applicable rules and regulations of the Securities and Exchange Commission (the SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for fiscal 2020.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year 2021 or any future period.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ from these estimates. Such estimates include, but are not limited to, the determination of standalone selling price for revenue arrangements with multiple performance obligations, useful lives of intangible assets and property and equipment, the period of benefit for deferred contract costs for commissions, stock-based compensation, provision for income taxes including related reserves, and valuation of intangible assets and goodwill. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
We considered the impact of the COVID-19 pandemic on the assumptions and estimates used and determined that there were no material adverse impacts on the condensed consolidated financial statements for the first quarter of fiscal 2021.
In accordance with our on-going accounting practices, we review the estimated useful lives of our property and equipment on an ongoing basis. In the first quarter of fiscal 2021, management determined that the estimated useful lives of its test equipment and certain computer equipment and software required revision. The estimated useful lives of test equipment and certain computer equipment and software were revised to 4 years. Previously, the estimated useful lives of these assets ranged from 2 to 3 years. The change in estimated useful lives was accounted for as a change in estimate and recognized on a prospective basis effective February 3, 2020. The effect of this change in estimate resulted in a reduction to depreciation expense and corresponding decrease in loss from operations and net loss of $7.9 million in the first quarter of fiscal 2021.
Restricted Cash
Restricted cash is comprised of cash collateral for letters of credit related to our leases and for a vendor credit card program. At the end of fiscal 2020 and the first quarter of fiscal 2021, we had restricted cash of $15.3 million.
Marketable Securities
We classify our marketable securities as available-for-sale at the time of purchase and reevaluate such classification at each balance sheet date. We may sell these securities at any time for use in current operations even if they have not yet reached maturity. As a result, we classify our securities, including those with maturities beyond twelve months, as current assets in the accompanying condensed consolidated balance sheets. We carry these securities at fair value and record unrealized gains and losses, in accumulated other comprehensive income (loss), which is reflected as a component of stockholders’ equity. We evaluate our securities to assess whether those with unrealized loss positions are other than temporarily impaired. We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. Realized gains and losses from the sale of marketable securities and declines in value deemed to be other than temporary are determined on the specific identification method. To date, there have been no declines in value deemed to be other than temporary in any of our securities. Realized gains and losses are reported in other income (expense), net in the condensed consolidated statements of operations.
Business Combinations
We allocate the purchase price to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of the assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill. The results of operations of an acquired business is included in our condensed consolidated financial statements from the date of acquisition. Acquisition-related expenses are expensed as incurred. 
Operating Leases
We determine if an arrangement contains a lease at inception. Lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest rate implicit in our operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future payments. The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments. The operating lease right-of-use (ROU) asset is determined based on the lease liability initially established and reduced for any prepaid lease payments and any lease incentives. We have elected to not allocate the contract consideration for operating lease contracts with lease and non-lease components, and account for the lease and non-lease components as a single lease component.
Certain of the operating lease agreements contain rent concession, rent escalation, and option to renew provisions. Rent concession and rent escalation provisions are considered in determining the lease cost. Lease cost is recognized on a straight-line basis over the lease term commencing on the date we have the right to use the leased property. We generally use the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that an extension or termination option will be exercised.
In addition, certain of our operating lease agreements contain tenant improvement allowances from our landlords. These allowances are accounted for as lease incentives and reduce our ROU asset and lease cost over the lease term.
For short-term leases with lease term no longer than twelve months, and do not include an option to purchase the underlying asset that we are reasonably certain to exercise, we recognize rent expense in our condensed consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.
Revenue Recognition
We generate revenue from two sources: (1) product revenue which includes hardware and embedded software and (2) subscription services revenue which includes Evergreen Storage subscriptions, Pure as-a-Service offerings, and Cloud Block Store.
Our product revenue is derived from the sale of integrated storage hardware and operating system software. We typically recognize product revenue upon transfer of control to our customers. Products are typically shipped directly by us to customers.
Our subscription services revenue is derived from the services we perform in connection with the sale of subscription services and is recognized ratably over the contractual term, which generally ranges from one to six years. The majority of our product solutions are sold with an Evergreen Storage subscription service agreement, which typically commences upon transfer of control of the corresponding products to our customers. Costs for subscription services are expensed when incurred. In addition, our Evergreen Storage subscription services agreement provides our customers who continually maintain active subscription services agreements for three years a controller refresh with each additional three year renewal. The controller refresh represents a separate performance obligation that is included within the Evergreen Storage subscription service agreement and the allocated revenue is recognized upon shipment of the controller.
Our subscription services also include the right to receive unspecified software updates and upgrades on a when-and-if-available basis, software bug fixes, replacement parts and other services related to the underlying infrastructure, as well as access to our cloud-based management and support platform. We also sell professional services such as installation and implementation consulting services, and the related revenue is recognized as services are performed.
We recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services. This is achieved through applying the following five-step approach:
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, we satisfy a performance obligation
When applying this five-step approach, we apply judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including the customer's historical payment experience and/or published credit and financial information pertaining to the customer. To the extent a customer contract includes multiple promised goods or services, we determine whether promised goods or services should be accounted for as a separate performance obligation. The transaction price is determined based on the consideration which we will be entitled to in exchange for transferring goods or services to the customer. We allocate the transaction price to each performance obligation for contracts that contain multiple performance obligations based on a relative standalone selling price which is determined based on the price at which the performance obligation is sold separately, or if not observable through past transactions, is estimated taking into account available information such as market conditions and internally approved pricing guidelines related to performance obligations.
v3.20.1
Financial Instruments
3 Months Ended
May 03, 2020
Investments, Debt and Equity Securities [Abstract]  
Financial Instruments Financial Instruments 
Fair Value Measurements
We measure our cash equivalents, marketable securities, and restricted cash at fair value on a recurring basis. We define fair value as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1 - Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 - Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments; and

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on our own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.
We classify our cash equivalents, marketable securities and restricted cash within Level 1 or Level 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded. Our fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of our marketable securities were derived from non-binding market consensus prices that are corroborated by observable market data or quoted market prices for similar instruments.
In addition to our cash equivalents, marketable securities and restricted cash, we measure the fair value of our convertible senior notes (the Notes) on a quarterly basis for disclosure purposes. We consider the fair value of the Notes at the end of the first quarter of fiscal 2021 to be a Level 2 measurement due to its limited trading activity. Refer to Note 6 for the carrying amount and estimated fair value of our Notes at the end of the first quarter of fiscal 2021.
Cash Equivalents, Marketable Securities and Restricted Cash
The following tables summarize our cash equivalents, marketable securities and restricted cash by significant investment categories at the end of fiscal 2020 and the first quarter of fiscal 2021 (in thousands):
 
 At the End of Fiscal 2020
 Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair
Value
Cash EquivalentsMarketable SecuritiesRestricted Cash
Level 1      
Money market accounts$—  $—  $—  $26,355  $11,068  $—  $15,287  
Level 2      
U.S. government treasury notes323,751  2,146  —  325,897  —  325,897  —  
U.S. government agencies53,930  317  (3) 54,244  —  54,244  —  
Corporate debt securities452,318  3,954  (1) 456,271  3,001  453,270  —  
Foreign government bonds14,994  147  —  15,141  —  15,141  —  
Asset-backed securities87,267  699  —  87,966  —  87,966  —  
Total$932,260  $7,263  $(4) $965,874  $14,069  $936,518  $15,287  

 
At the End of the First Quarter of Fiscal 2021
 Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair
Value
Cash EquivalentsMarketable
Securities
Restricted Cash
Level 1
Money market accounts$—  $—  $—  $50,272  $34,985  $—  $15,287  
Level 2       
U.S. government treasury notes340,119  5,952  (1) 346,070  —  346,070  —  
U.S. government agencies41,675  618  (11) 42,282  —  42,282  —  
Corporate debt securities427,757  4,706  (412) 432,051  —  432,051  —  
Foreign government bonds21,776  413  —  22,189  —  22,189  —  
Asset-backed securities83,250  803  (85) 83,968  —  83,968  —  
Total$914,577  $12,492  $(509) $976,832  $34,985  $926,560  $15,287  
 
The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):
 
At the End of the First Quarter of Fiscal 2021
 Amortized CostFair Value
Due within one year$396,243  $398,933  
Due in one to five years516,314  525,606  
Due in five to ten years2,020  2,021  
Total$914,577  $926,560  
 
Based on our evaluation of available evidence, we concluded that the gross unrealized losses on our investments at the end of fiscal 2020 and the first quarter of fiscal 2021 were temporary in nature. We do not intend to sell these investments and it is not more likely than not that we will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The following table presents gross unrealized losses and fair values for those investments that were in a continuous unrealized loss position at the end of fiscal 2020 and the first quarter of fiscal 2021, aggregated by investment category (in thousands):

At the End of Fiscal 2020
Less than 12 monthsGreater than 12 monthsTotal
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
U.S. government treasury notes$—  $—  $1,000  $—  $1,000  $—  
U.S. government agencies4,998  (3) —  —  4,998  (3) 
Corporate debt securities9,691  (1) —  —  9,691  (1) 
Total$14,689  $(4) $1,000  $—  $15,689  $(4) 

At the End of the First Quarter of Fiscal 2021
 Less than 12 monthsGreater than 12 monthsTotal
 Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
U.S. government treasury notes$14,975  $(1) $—  $—  $14,975  $(1) 
U.S. government agencies6,984  (11) —  —  6,984  (11) 
Corporate debt securities57,571  (412) —  —  57,571  (412) 
Asset-backed securities14,544  (85) —  —  14,544  (85) 
Total$94,074  $(509) $—  $—  $94,074  $(509) 
 
Realized gains or losses on sale of marketable securities were not significant for all periods presented.
v3.20.1
Balance Sheet Components
3 Months Ended
May 03, 2020
Balance Sheet Components Disclosure [Abstract]  
Balance Sheet Components Balance Sheet Components
Inventory
Inventory consists of the following (in thousands):
At the End of
Fiscal 2020
First Quarter of Fiscal 2021
Raw materials$2,974  $5,687  
Finished goods35,544  33,579  
Inventory$38,518  $39,266  
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
 
At the End of
 Fiscal 2020
First Quarter of Fiscal 2021
Test equipment$205,555  $216,184  
Computer equipment and software141,387  150,012  
Furniture and fixtures8,324  8,800  
Leasehold improvements40,356  43,032  
Total property and equipment395,622  418,028  
Less: accumulated depreciation and amortization(272,882) (281,820) 
Property and equipment, net$122,740  $136,208  
 
Depreciation and amortization expense related to property and equipment was $19.8 million and $12.4 million for the first quarter of fiscal 2020 and 2021.
Intangible Assets, Net
Intangible assets, net consist of the following (in thousands):
 
At the End of
 Fiscal 2020
First Quarter of Fiscal 2021
Gross Carrying ValueAccumulated AmortizationNet Carrying AmountGross Carrying ValueAccumulated AmortizationNet Carrying Amount
Technology patents$19,125  $(8,933) $10,192  $19,125  $(9,630) $9,495  
Developed technology56,100  (8,035) 48,065  56,100  (10,039) 46,061  
Intangible assets, net$75,225  $(16,968) $58,257  $75,225  $(19,669) $55,556  
 
Intangible assets amortization expense was $1.3 million and $2.7 million for the first quarter of fiscal 2020 and 2021. At the end of the first quarter of fiscal 2021, the weighted-average remaining amortization period was 3.4 years for technology patents and 5.7 years for developed technology. Amortization of the technology patents is included in general and administrative expenses due to their defensive nature and amortization of developed technology is included in cost of product revenue in the condensed consolidated statements of operations.
At the end of the first quarter of fiscal 2021, future expected amortization expense for intangible assets is as follows (in thousands):
Fiscal Years EndingEstimated 
Future
Amortization
Expense
Remainder of 2021$8,103  
20229,846  
20239,300  
20249,300  
20259,300  
Thereafter9,707  
Total$55,556  
Goodwill
As of the end of fiscal 2020 and the first quarter of fiscal 2021, goodwill was $37.6 million. There were no impairments to goodwill during the first quarter of fiscal 2020 and 2021.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
At the End of
 Fiscal 2020
First Quarter of Fiscal 2021
Taxes payable $9,012  $7,459  
Accrued marketing7,679  7,767  
Accrued travel and entertainment expenses3,829  1,126  
Acquisition consideration(1)
6,149  470  
Other accrued liabilities20,554  22,059  
Total accrued expenses and other liabilities$47,223  $38,881  

(1)Payment in the amount of $7.3 million was made in April 2020.
v3.20.1
Deferred Revenue from Commissions
3 Months Ended
May 03, 2020
Revenue from Contract with Customer [Abstract]  
Deferred Revenue and Commissions Deferred Revenue and Commissions
Deferred Commissions
Deferred commissions consist of incremental costs paid to our sales force to obtain customer contracts. Deferred commissions related to product revenue are recognized upon transfer of control to customers and deferred commissions related to subscription services revenue are amortized over an expected useful life of six years. We determine the expected useful life based on an estimated benefit period by evaluating our technology development life cycle, expected customer relationship period and other factors. We classify deferred commissions as current and non-current on our condensed consolidated balance sheets based on the timing of when we expect to recognize the expense. Amortization of deferred commissions is included in sales and marketing expense in the condensed consolidated statements of operations.
Changes in total deferred commissions during the periods presented are as follows (in thousands): 
First Quarter of Fiscal
20202021
Beginning balance
$114,973  $139,204  
Additions18,236  29,762  
Recognition of deferred commissions(19,952) (26,603) 
Ending balance$113,257  $142,363  
Of the $142.4 million total deferred commissions balance at the end of the first quarter of fiscal 2021, we expect to recognize approximately 28% as commission expense over the next 12 months and the remainder thereafter.
There was no impairment related to capitalized commissions for the first quarter of fiscal 2020 and 2021.
Deferred Revenue
Deferred revenue primarily consists of amounts that have been invoiced but have not yet been recognized as revenue including performance obligations pertaining to subscription services. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the condensed consolidated balance sheet dates.
Changes in total deferred revenue during the periods presented are as follows (in thousands):

First Quarter of Fiscal
20202021
Beginning balance
$535,920  $697,288  
Additions117,894  131,734  
Recognition of deferred revenue(89,584) (122,962) 
Ending balance$564,230  $706,060  
Revenue recognized during the first quarter of fiscal 2020 and 2021, from deferred revenue at the beginning of each respective period was $79.3 million and $108.7 million.
Remaining Performance Obligations
Total contracted but not recognized revenue was $912.0 million at the end of the first quarter of fiscal 2021. Contracted but not recognized revenue consists of both deferred revenue and non-cancelable amounts that are expected to be invoiced and recognized as revenue in future periods. For orders that are contracted but have not been fulfilled and that can be canceled by customers, the order values are excluded from remaining performance obligations. Of the $912.0 million contracted but not recognized revenue at the end of the first quarter of fiscal 2021, we expect to recognize approximately 42% over the next 12 months, and the remainder thereafter.
v3.20.1
Convertible Senior Notes
3 Months Ended
May 03, 2020
Debt Disclosure [Abstract]  
Convertible Senior Notes Convertible Senior Notes
In April 2018, we issued $575.0 million in principal amount of 0.125% convertible senior notes due 2023, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act and received proceeds of $562.1 million, after deducting the underwriters’ discounts and commissions. The Notes are governed by an indenture (the Indenture) between us, as the issuer, and U.S. Bank National Association, as trustee. The Notes are our senior unsecured obligations. The Indenture does not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our subsidiaries. The Notes mature on April 15, 2023 unless repurchased or redeemed by us or converted in accordance with their terms prior to the maturity date. Interest is payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2018.

The Notes are convertible for up to 21,884,155 shares of our common stock at an initial conversion rate of approximately 38.0594 shares of common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $26.27 per share of common stock, subject to adjustment. Holders of the Notes may surrender their Notes for conversion at their option at any time prior to the close of business on the business day immediately preceding October 15, 2022, only under the following circumstances:

during any fiscal quarter commencing after the fiscal quarter ended on July 31, 2018 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the Notes on each applicable trading day;

during the five business day period after any five consecutive trading day period (the measurement period), in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the Notes on each such trading day;

if we call any or all of the Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or

upon the occurrence of specified corporate events.

On or after October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time regardless of the foregoing circumstances. Upon conversion, holders will receive cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. We intend to settle the principal of the Notes in cash.
The conversion price will be subject to adjustment in some events. Following certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, we will increase the conversion rate for a holder who elects to convert its Notes in connection with such corporate event or during the related redemption period in certain circumstances. Additionally, upon the occurrence of a corporate event that constitutes a “fundamental change” per the Indenture, holders of the Notes may require us to repurchase for cash all or a portion of the Notes at a purchase price equal to 100% of the principal amount of the Notes plus accrued and unpaid contingent interest.

We may not redeem the Notes prior to April 20, 2021. We may redeem for cash all or any portion of the Notes, at our option, on or after April 20, 2021 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending not more than two trading days immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.

In accounting for the issuance of the Notes, we separated the Notes into liability and equity components. The carrying amount of the liability component was determined by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was calculated by deducting the fair value of the liability component from the principal amount of the Notes as a whole. The difference between the principal amount of the Notes and the liability component (the debt discount) is amortized to interest expense in the condensed consolidated statements of operations using the effective interest method over the term of the Notes. The equity component of the Notes is included in additional paid-in capital in the condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the transaction costs related to the issuance of the Notes, we allocated the total amount incurred to the liability and equity components using the same proportions as the initial carrying value of the Notes. Transaction costs attributable to the liability component were netted with the principal amount of the Notes in the condensed consolidated balance sheets and are being amortized to interest expense in the condensed consolidated statements of operations using the effective interest method over the term of the Notes. Transaction costs attributable to the equity component were netted with the equity component of the Notes in additional paid-in capital in the condensed consolidated balance sheets. Upon the issuance of the Notes, we recorded total debt issuance costs of $12.9 million, of which $9.8 million was allocated to the Notes and $3.1 million was allocated to additional paid-in capital.

The Notes consisted of the following (in thousands):
At the End of
Fiscal 2020
First Quarter of Fiscal 2021
Liability:
Principal$575,000  $575,000  
Less: debt discount, net of amortization(91,378) (84,910) 
Less: debt issuance costs, net of amortization(6,615) (6,147) 
Net carrying amount of the Notes$477,007  $483,943  
Stockholders' equity recorded at issuance:
Allocated value of the conversion feature$136,333  
Less: debt issuance costs(3,068) 
Additional paid-in capital$133,265  
The total estimated fair value of the Notes at the end of the first quarter of fiscal 2021 was $521.0 million. The fair value was determined based on the closing trading price per $100 of the Notes as of the last day of trading for the period. The fair value of the Notes is primarily affected by the trading price of our common stock and market interest rates. Based on the closing price of our common stock of $13.37 on the last day of the first quarter of fiscal 2021, the if-converted value of the Notes of $292.6 million was less than its principal amount. At the end of the first quarter of fiscal 2021, the remaining term of the Notes is 35 months.

The following table sets forth total interest expense recognized related to the Notes for the first quarter of fiscal 2020 and 2021 (in thousands):
First Quarter of Fiscal
20202021
Amortization of debt discount$6,052  $6,468  
Amortization of debt issuance costs438  468  
Total amortization of debt discount and debt issuance costs6,490  6,936  
Contractual interest expense177  177  
Total interest expense related to the Notes$6,667  $7,113  
Effective interest rate of the liability component5.6 %5.6 %

In connection with the offering of the Notes, we paid $64.6 million to enter into capped call transactions with certain of the underwriters and their affiliates (the Capped Calls), whereby we have the option to purchase a total of 21,884,155 shares of our common stock upon any conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of the Notes, as the case may be, with such reduction or offset subject to a cap initially equal to $39.66 per share (which represents a premium of 100% over the last reported sales price of our common stock on April 4, 2018), subject to certain adjustments (the Cap Price). The cost of the Capped Calls was accounted for as a reduction to additional paid-in capital on the condensed consolidated balance sheet. The Capped Calls are intended to reduce or offset potential dilution of our common stock upon any conversion of the Notes, subject to a cap based on the Cap Price.

Impact on Earnings Per Share
The Notes will not impact our diluted earnings per share until the average market price of our common stock exceeds the conversion price of $26.27 per share, as we intend to settle the principal amount of the Notes in cash upon conversion. We are required under the treasury stock method to compute the potentially dilutive shares of common stock related to the Notes for periods we report net income. However, upon conversion, there will be no economic dilution from the Notes until the average market price of our common stock exceeds the Cap Price of $39.66 per share, as exercise of the Capped Calls offsets any dilution from the Notes from the conversion price up to the Cap Price. Capped Calls are excluded from the calculation of diluted earnings per share, as they would be anti-dilutive under the treasury stock method.
v3.20.1
Commitments and Contingencies
3 Months Ended
May 03, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Letters of Credit
At the end of fiscal 2020 and the first quarter of fiscal 2021, we had outstanding letters of credit in the aggregate amount of $11.5 million, in connection with our facility leases. The letters of credit are collateralized by restricted cash and mature on various dates through August 2029.
Legal Matters
From time to time, we have become involved in claims and other legal matters arising in the normal course of business. We investigate these claims as they arise. Although claims are inherently unpredictable, we currently are not aware of any matters that we expect to have a material adverse effect on our business, financial position, results of operations or cash flows. Accordingly, we have not recorded any loss contingency on our condensed consolidated balance sheet at the end of the first quarter of fiscal 2021.
Indemnification
Our arrangements generally include certain provisions for indemnifying customers against liabilities if our products or services infringe a third party’s intellectual property rights. Other guarantees or indemnification arrangements include guarantees of product and service performance and standby letters of credit for lease facilities. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. To date, we have not incurred any material costs as a result of such obligations and have not accrued any liabilities related to such obligations in the condensed consolidated financial statements. In addition, we indemnify our officers, directors and certain key employees while they are serving in good faith in their respective capacities. To date, there have been no claims under any indemnification provisions.
v3.20.1
Leases
3 Months Ended
May 03, 2020
Leases [Abstract]  
Leases Leases
We lease office facilities under non-cancelable operating lease agreements expiring through July 2032. Our lease agreements do not contain any material residual value guarantees or restrictive covenants. During the first quarter of fiscal 2021, we entered into several leases to add office space and executed a data center lease resulting in additional lease payments of $6.8 million. The components of lease costs during the periods presented were as follows (in thousands):
First Quarter of Fiscal
2020
2021
Fixed operating lease cost$8,483  $8,749  
Variable lease cost (1)
2,100  2,651  
Short-term lease cost (12 months or less)861  1,507  
Total lease cost$11,444  $12,907  
____________________________________
(1) Variable lease cost for the first quarter of fiscal 2020 and 2021 predominantly included common area maintenance charges.
At the end of the first quarter of fiscal 2021, the weighted-average remaining lease term is 5.65 years, and the weighted-average discount rate is 6.42%. Future lease payments under our non-cancelable operating leases at the end of the first quarter of fiscal 2021 were as follows (in thousands):
Fiscal Years EndingOperating Leases
The remainder of 2021$27,916  
202231,710  
202325,506  
202419,272  
202515,775  
Thereafter33,139  
Total future lease payments153,318  
Less: imputed interest(27,492) 
Present value of lease liabilities$125,826  
Future lease payments in the above table do not include a data center lease that has not commenced with total undiscounted cash flows of $22.4 million with a lease term of 5.2 years.
Supplemental cash flow information related to our operating leases for the first quarter of fiscal 2020 and 2021 were as follows:
First Quarter of Fiscal
2020
2021
Cash paid for amounts included in the measurement of lease liabilities (in thousands)$8,114  $8,688  
Operating lease right-of-use assets obtained in exchange for operating lease liabilities$2,327  $10,812  
v3.20.1
Restructuring and Other
3 Months Ended
May 03, 2020
Restructuring and Related Activities [Abstract]  
Restructuring and Other Restructuring and OtherIn February 2020 and prior to the effects of the COVID-19 pandemic, we effected a workforce realignment plan as part of an effort to streamline our operations. We estimated approximately $6.5 million of restructuring costs related to one-time involuntary termination benefit costs, of which $5.8 million was recognized in the first quarter of fiscal 2021. The restructuring charge is included in restructuring and other on our condensed consolidated statement of operations. We expect to recognize the remaining costs associated with the plan of termination in the second quarter of fiscal 2021. The liability for unpaid amounts at the end of the first quarter was not material.During the first quarter of fiscal 2021, we incurred incremental costs of $9.5 million directly related to the COVID-19 pandemic. These costs primarily included the write-off of marketing commitments no longer deemed to have value for the remainder of fiscal 2021, estimated non-recoverable costs for internal events that could not be held, and hazard related premiums to support manufacturing operations. Of the $9.5 million, $8.9 million is included in restructuring and other expenses and $0.6 million is included in cost of revenue on our condensed consolidated statement of operations.
v3.20.1
Stockholders' Equity
3 Months Ended
May 03, 2020
Equity [Abstract]  
Stockholders' Equity Stockholders’ Equity
Preferred Stock
We have 20,000,000 authorized shares of undesignated preferred stock, the rights, preferences and privileges of which may be designated from time to time by our board of directors. At the end of the first quarter of fiscal 2021, there were no shares of preferred stock issued or outstanding.
Class A and Class B Common Stock
We have two classes of authorized common stock, Class A common stock, which we refer to as our "common stock", and Class B common stock. At the end of the first quarter of fiscal 2021, we had 2,000,000,000 authorized shares of Class A common stock and 250,000,000 authorized shares of Class B common stock, with each class having a par value of $0.0001 per share. At the end of the first quarter of fiscal 2021, 263,969,943 shares of Class A common stock were issued and outstanding.
Share Repurchase Program
In August 2019, our board of directors approved the repurchase of up to $150.0 million of our common stock. The authorization allows us to repurchase shares of our common stock opportunistically and will be funded from available working capital. Repurchases may be made at management’s discretion from time to time on the open market through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing. The share repurchase program does not obligate us to acquire any of our common stock, has no end date, and may be suspended or discontinued by us at any time without prior notice. The difference between cash paid for stock repurchases and underlying par value is recorded as a reduction to additional paid-in capital, to the extent the repurchases does not cause this balance to be reduced below zero, at which point the difference will be recorded as a reduction to accumulated deficit. During the first quarter of fiscal 2021, we repurchased and retired 5,959,430 shares of common stock at an average purchase price of $11.75 per share for an aggregate repurchase price of $70.0 million. At the end of the first quarter of fiscal 2021, $65.0 million remained available for future share repurchases under our current repurchase authorization.
v3.20.1
Equity Incentive Plans
3 Months Ended
May 03, 2020
Share-based Payment Arrangement [Abstract]  
Equity Incentive Plans Equity Incentive Plans
Equity Incentive Plans
We maintain two equity incentive plans: the 2009 Equity Incentive Plan (the 2009 Plan) and the 2015 Equity Incentive Plan (the 2015 Plan). The 2015 Plan became effective in connection with our initial public offering (IPO) in October 2015 and serves as the successor to our 2009 Plan. The 2015 Plan provides for grants of incentive stock options to our employees and non-statutory stock options, stock appreciation rights, restricted stock, restricted stock unit awards (RSUs), performance stock awards, performance cash awards, and other forms of stock awards to our employees, directors and consultants. No new awards have been issued under our 2009 Plan after the effective date of our 2015 Plan. Outstanding awards granted under our 2009 Plan will remain subject to the terms of our 2009 Plan and applicable award agreements, until such outstanding awards that are stock options are exercised, terminated or expired by their terms.
We net-share settle equity awards held by certain employees by withholding shares upon vesting to satisfy tax withholding obligations. The shares withheld to satisfy employee tax withholding obligations are returned to our 2015 Plan and will be available for future issuance. Payments for employees’ tax obligations to the tax authorities are recognized as a reduction to additional paid-in capital and reflected as a financing activity in our condensed consolidated statements of cash flows.
The exercise price of stock options will generally not be less than 100% of the fair market value of our common stock on the date of grant, as determined by our board of directors. Our equity awards generally vest over a two to four year period and expire no later than ten years from the date of grant.
2015 Amended and Restated Employee Stock Purchase Plan
Our 2015 Employee Stock Purchase Plan (2015 ESPP) became effective in connection with our IPO and was amended and restated in fiscal 2020. Our board of directors (or a committee thereof) has the authority under the 2015 ESPP to establish the length and terms of the offering periods and purchase periods and the purchase price of the shares of common stock which may be purchased under the plan. The current offering terms allow eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to 30% of their eligible compensation, subject to a cap of 3,000 shares on any purchase date or $25,000 in any calendar year (as determined under applicable tax rules). In February 2019, we amended the offering terms under the 2015 ESPP on a prospective basis, to include an additional dollar cap of $7,500 per purchase period. The current terms also allow for a 24-month offering period beginning March 16th and September 16th of each year, with each offering period consisting of four 6 months purchase periods, subject to a reset provision. Further, currently, on each purchase date, eligible employees may purchase our common stock at a price per share equal to 85% of the lesser of the fair market value of our common stock (1) on the first trading day of the applicable offering period or (2) the purchase date.
Under the reset provision currently authorized, if the closing stock price on the offering date of a new offering falls below the closing stock price on the offering date of an ongoing offering, the ongoing offering would terminate immediately following the purchase of ESPP shares on the purchase date immediately preceding the new offering and participants in the terminated ongoing offering would automatically be enrolled in the new offering (ESPP reset), resulting in a modification charge to be recognized over the new offering period. During the first quarter of fiscal 2021, there was an ESPP reset that resulted in a modification charge of $23.8 million, which is being recognized over the new offering period ending March 15, 2022.
Stock-based compensation expense related to our 2015 ESPP was $11.4 million and $5.6 million during the first quarter of fiscal 2020 and 2021. At the end of the first quarter of fiscal 2021, total unrecognized stock-based compensation cost related to our 2015 ESPP was $49.8 million, which is expected to be recognized over a weighted-average period of 1.9 years.
Stock Options
A summary of the stock option activity under our equity incentive plans and related information is as follows:
 
 Options Outstanding
 Number of
Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Life (In Years)
Aggregate
Intrinsic
Value (in thousands)
Balance at the end of fiscal 202026,822,243  $8.97  3.9$237,803  
Options exercised(2,174,568) 4.32    
Options forfeited/canceled(108,184) 16.13    
Balance at the end of the first quarter of fiscal 2021
24,539,491  $9.36  3.8$127,583  
Vested and exercisable at the end of the first quarter of fiscal 2021
22,050,411  $8.62  4.2$126,788  
 
The aggregate intrinsic value of options vested and exercisable at the end of the first quarter of fiscal 2021 is calculated based on the difference between the exercise price and the closing price of $13.37 of our common stock on the last day of the first quarter of fiscal 2021.
During the first quarter of fiscal 2020 and 2021, we recognized $5.5 million and $2.0 million in stock-based compensation expense related to stock options.
At the end of the first quarter of fiscal 2021, total unrecognized employee compensation cost related to outstanding options was $8.5 million, which is expected to be recognized over a weighted-average period of 1.2 years.
RSUs
A summary of the RSU activity under our 2015 Plan and related information is as follows:
 Number of RSUs OutstandingWeighted-
Average
Grant Date
Fair Value
Aggregate
Intrinsic
Value (in thousands)
Unvested balance at the end of fiscal 202025,434,597  $18.72  $452,736  
Granted10,927,370  9.76  
Vested(2,524,966) 17.57  
Forfeited(1,092,135) 18.17  
Unvested balance at the end of the first quarter of fiscal 2021
32,744,866  $15.83  $438,253  

During the first quarter of fiscal 2020 and 2021, we recognized $37.3 million and $46.8 million in stock-based compensation expense related to RSUs. At the end of the first quarter of fiscal 2021, total unrecognized employee compensation cost related to unvested RSUs was $476.1 million, which is expected to be recognized over a weighted-average period of 3.0 years.
Restricted Stock
A summary of the restricted stock activity under our 2015 Plan and related information is as follows:
 Number of Restricted Stock OutstandingWeighted-
Average
Grant Date
Fair Value
Aggregate
Intrinsic
Value (in thousands)
Unvested balance at the end of fiscal 20202,127,206  $19.58  $37,684  
Vested(543,859) 19.43  
Forfeited/canceled(229,605) 20.15  
Unvested balance at the end of the first quarter of fiscal 2021
1,353,742  $19.55  $18,100  

All unvested shares of restricted stock are subject to cancellation to the extent vesting conditions are not met. During the first quarter of fiscal 2020 and 2021, we recognized $7.5 million and $4.3 million in stock-based compensation expense related to restricted stock. At the end of the first quarter of fiscal 2021, total unrecognized employee compensation cost related to unvested restricted stock was $9.9 million, which is expected to be recognized over a weighted-average period of 1.6 years.
Stock-Based Compensation Expense
The following table summarizes the components of stock-based compensation expense recognized in the condensed consolidated statements of operations (in thousands):
 
 
First Quarter of Fiscal
 20202021
Cost of revenue—product$977  $996  
Cost of revenue—subscription services3,951  3,392  
Research and development
28,245  28,711  
Sales and marketing18,314  16,272  
General and administrative10,670  9,323  
Total stock-based compensation expense$62,157  $58,694  
The tax benefit related to stock-based compensation expense for all periods presented was not material.
v3.20.1
Net Loss per Share Attributable to Common Stockholders
3 Months Ended
May 03, 2020
Earnings Per Share [Abstract]  
Net Loss per Share Attributable to Common Stockholders Net Loss per Share Attributable to Common Stockholders
Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. Diluted net loss per share attributable to common stockholders is computed by giving effect to all potentially dilutive common stock equivalents, including our outstanding stock options, common stock related to unvested RSUs, repurchasable shares from restricted stock, our Notes to the extent dilutive, and common stock issuable pursuant to the ESPP. These potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive.
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):
 
First Quarter of Fiscal
 20202021
Net loss$(100,336) $(90,594) 
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted245,334  262,935  
Net loss per share attributable to common stockholders, basic and diluted$(0.41) $(0.34) 
The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (in thousands):
 
 
First Quarter of Fiscal
 20202021
Stock options to purchase common stock34,001  25,590  
Unvested RSUs23,846  29,146  
Restricted stock subject to repurchase2,632  1,705  
Shares related to convertible senior notes21,884  21,884  
Shares issuable pursuant to the ESPP297  1,046  
Total82,660  79,371  
v3.20.1
Other Income (Expense), Net
3 Months Ended
May 03, 2020
Other Income and Expenses [Abstract]  
Other Income (Expense), Net Other Income (Expense), Net
Other income (expense), net consists of the following (in thousands):
First Quarter of Fiscal
20202021
Interest income(1)
$6,834  $6,231  
Interest expense(2)
(6,667) (7,151) 
Foreign currency transactions losses(1,981) (2,386) 
Other expense(2) (110) 
Total other income (expense), net$(1,816) $(3,416) 
____________________________________
(1) Interest income includes interest income related to our cash, cash equivalents and marketable securities and non-cash interest income (expense) related to accretion (amortization) of the discount (premium) on marketable securities.
(2) Interest expense includes non-cash interest expense related to amortization of the debt discount and debt issuance costs of the Notes and the contractual interest expense related to the Notes and long-term debt.
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Income Taxes
3 Months Ended
May 03, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Our provision for income tax primarily reflects taxes on international operations and state income taxes. The difference between the income tax provision that would be derived by applying the statutory rate to our loss before income taxes and the income tax provision recorded was primarily attributable to changes in our valuation allowance, stock-based compensation expense and research and development credits.
At the end of the first quarter of fiscal 2021, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for fiscal 2020.
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Segment Information
3 Months Ended
May 03, 2020
Segment Reporting [Abstract]  
Segment Information Segment Information
Our chief operating decision maker is our Chief Executive Officer. Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. We have one business activity and there are no segment managers who are held accountable for operations or operating results. Accordingly, we have a single reportable segment.
Disaggregation of Revenue
The following table depicts the disaggregation of revenue by geographic area based on the billing address of our customers and is consistent with how we evaluate our financial performance (in thousands):
 
First Quarter of Fiscal
 20202021
United States$228,939  $264,146  
Rest of the world97,761  102,973  
Total revenue$326,700  $367,119  
Long-Lived Assets by Geographic Area
Long-lived assets, which are comprised of property and equipment, net, by geographic area are summarized as follows (in thousands):
 
At the End of
 Fiscal 2020
First Quarter of Fiscal 2021
United States$113,942  $127,006  
Rest of the world8,798  9,202  
Total long-lived assets$122,740  $136,208  
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Basis of Presentation and Summary of Significant Accounting Policies - (Policies)
3 Months Ended
May 03, 2020
Accounting Policies [Abstract]  
Basis of Presentation and Principles of Consolidation
Basis of Presentation and Principles of Consolidation
In September 2019, we adopted a 52/53 week fiscal year consisting of four 13-week quarters ending on the first Sunday after January 30, which for fiscal 2020 was February 2, 2020 and for fiscal 2021 is January 31, 2021. The first quarter of fiscal 2020 and 2021 ended on April 30, 2019 and May 3, 2020. Unless otherwise stated, all dates refer to the Company’s fiscal year and fiscal periods.
The condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Unaudited Interim Consolidated Financial Information
Unaudited Interim Consolidated Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and applicable rules and regulations of the Securities and Exchange Commission (the SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for fiscal 2020.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year 2021 or any future period.
Use of Estimates
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ from these estimates. Such estimates include, but are not limited to, the determination of standalone selling price for revenue arrangements with multiple performance obligations, useful lives of intangible assets and property and equipment, the period of benefit for deferred contract costs for commissions, stock-based compensation, provision for income taxes including related reserves, and valuation of intangible assets and goodwill. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
We considered the impact of the COVID-19 pandemic on the assumptions and estimates used and determined that there were no material adverse impacts on the condensed consolidated financial statements for the first quarter of fiscal 2021.
In accordance with our on-going accounting practices, we review the estimated useful lives of our property and equipment on an ongoing basis. In the first quarter of fiscal 2021, management determined that the estimated useful lives of its test equipment and certain computer equipment and software required revision. The estimated useful lives of test equipment and certain computer equipment and software were revised to 4 years. Previously, the estimated useful lives of these assets ranged from 2 to 3 years. The change in estimated useful lives was accounted for as a change in estimate and recognized on a prospective basis effective February 3, 2020. The effect of this change in estimate resulted in a reduction to depreciation expense and corresponding decrease in loss from operations and net loss of $7.9 million in the first quarter of fiscal 2021.
Restricted Cash Restricted Cash Restricted cash is comprised of cash collateral for letters of credit related to our leases and for a vendor credit card program.
Marketable Securities
Marketable Securities
We classify our marketable securities as available-for-sale at the time of purchase and reevaluate such classification at each balance sheet date. We may sell these securities at any time for use in current operations even if they have not yet reached maturity. As a result, we classify our securities, including those with maturities beyond twelve months, as current assets in the accompanying condensed consolidated balance sheets. We carry these securities at fair value and record unrealized gains and losses, in accumulated other comprehensive income (loss), which is reflected as a component of stockholders’ equity. We evaluate our securities to assess whether those with unrealized loss positions are other than temporarily impaired. We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. Realized gains and losses from the sale of marketable securities and declines in value deemed to be other than temporary are determined on the specific identification method. To date, there have been no declines in value deemed to be other than temporary in any of our securities. Realized gains and losses are reported in other income (expense), net in the condensed consolidated statements of operations.
Business Combinations Business CombinationsWe allocate the purchase price to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of the assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill. The results of operations of an acquired business is included in our condensed consolidated financial statements from the date of acquisition. Acquisition-related expenses are expensed as incurred.
Operating Leases
Operating Leases
We determine if an arrangement contains a lease at inception. Lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest rate implicit in our operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future payments. The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments. The operating lease right-of-use (ROU) asset is determined based on the lease liability initially established and reduced for any prepaid lease payments and any lease incentives. We have elected to not allocate the contract consideration for operating lease contracts with lease and non-lease components, and account for the lease and non-lease components as a single lease component.
Certain of the operating lease agreements contain rent concession, rent escalation, and option to renew provisions. Rent concession and rent escalation provisions are considered in determining the lease cost. Lease cost is recognized on a straight-line basis over the lease term commencing on the date we have the right to use the leased property. We generally use the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that an extension or termination option will be exercised.
In addition, certain of our operating lease agreements contain tenant improvement allowances from our landlords. These allowances are accounted for as lease incentives and reduce our ROU asset and lease cost over the lease term.
For short-term leases with lease term no longer than twelve months, and do not include an option to purchase the underlying asset that we are reasonably certain to exercise, we recognize rent expense in our condensed consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.
Revenue Recognition
Revenue Recognition
We generate revenue from two sources: (1) product revenue which includes hardware and embedded software and (2) subscription services revenue which includes Evergreen Storage subscriptions, Pure as-a-Service offerings, and Cloud Block Store.
Our product revenue is derived from the sale of integrated storage hardware and operating system software. We typically recognize product revenue upon transfer of control to our customers. Products are typically shipped directly by us to customers.
Our subscription services revenue is derived from the services we perform in connection with the sale of subscription services and is recognized ratably over the contractual term, which generally ranges from one to six years. The majority of our product solutions are sold with an Evergreen Storage subscription service agreement, which typically commences upon transfer of control of the corresponding products to our customers. Costs for subscription services are expensed when incurred. In addition, our Evergreen Storage subscription services agreement provides our customers who continually maintain active subscription services agreements for three years a controller refresh with each additional three year renewal. The controller refresh represents a separate performance obligation that is included within the Evergreen Storage subscription service agreement and the allocated revenue is recognized upon shipment of the controller.
Our subscription services also include the right to receive unspecified software updates and upgrades on a when-and-if-available basis, software bug fixes, replacement parts and other services related to the underlying infrastructure, as well as access to our cloud-based management and support platform. We also sell professional services such as installation and implementation consulting services, and the related revenue is recognized as services are performed.
We recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services. This is achieved through applying the following five-step approach:
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, we satisfy a performance obligation
When applying this five-step approach, we apply judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including the customer's historical payment experience and/or published credit and financial information pertaining to the customer. To the extent a customer contract includes multiple promised goods or services, we determine whether promised goods or services should be accounted for as a separate performance obligation. The transaction price is determined based on the consideration which we will be entitled to in exchange for transferring goods or services to the customer. We allocate the transaction price to each performance obligation for contracts that contain multiple performance obligations based on a relative standalone selling price which is determined based on the price at which the performance obligation is sold separately, or if not observable through past transactions, is estimated taking into account available information such as market conditions and internally approved pricing guidelines related to performance obligations.
Fair Value Measurements
Fair Value Measurements
We measure our cash equivalents, marketable securities, and restricted cash at fair value on a recurring basis. We define fair value as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1 - Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 - Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments; and

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on our own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.
We classify our cash equivalents, marketable securities and restricted cash within Level 1 or Level 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded. Our fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of our marketable securities were derived from non-binding market consensus prices that are corroborated by observable market data or quoted market prices for similar instruments.
In addition to our cash equivalents, marketable securities and restricted cash, we measure the fair value of our convertible senior notes (the Notes) on a quarterly basis for disclosure purposes. We consider the fair value of the Notes at the end of the first quarter of fiscal 2021 to be a Level 2 measurement due to its limited trading activity. Refer to Note 6 for the carrying amount and estimated fair value of our Notes at the end of the first quarter of fiscal 2021