UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 24, 2020
_____________________________________
Pure Storage, Inc.
(Exact name of Registrant as Specified in Its Charter)
_____________________________________ 

Delaware	 	001-37570	 	27-1069557	
(State or Other Jurisdiction
of Incorporation)	 	(Commission
File Number)	 	(IRS Employer Identification No.)	
						
650 Castro Street, Suite 400		Mountain View	California		94041	
(Address of Principal Executive Offices)					(Zip Code)	
 
(800) 379-7873
(Registrant’s Telephone Number, Including Area Code)
 
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
________________________________________
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	 	Trading symbol(s)	 	Name of each exchange on which registered	
Class A Common Stock, $0.0001 par value per share	 	PSTG	 	New York Stock Exchange LLC	
________________________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):
						
☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

	

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Item 2.02. Results of Operations and Financial Condition.
 
On February 27, 2020, Pure Storage, Inc. (“Pure”) issued a press release and will hold a conference call regarding its financial results for the quarter ended February 2, 2020. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K.
 
This information, including the exhibit(s) hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
 
Pure is making reference to non-GAAP financial information in the press release and the conference call. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in the attached press release.  These non-GAAP financial measures are reported in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
(a) On February 24, 2020, Frank Slootman, a Class II director, resigned from the Board of Directors (including the Compensation Committee) of Pure Storage, Inc. (“Pure”), effective immediately. Mr. Slootman informed Pure that his decision to resign as a director was not due to any disagreements with Pure on any matter relating to Pure’s operations, policies or practices.

(d) On February 24, 2020, Pure’s Board of Directors appointed Greg Tomb as a Class I director to fill the vacancy created by Mr. Slootman’s resignation, effective immediately. Mr. Tomb’s term as a member of the Board will expire at the meeting of stockholders to be held in 2022.

In accordance with Pure’s director compensation policy, Mr. Tomb was granted a restricted stock unit award for 34,582 shares of Pure’s Class A common stock. Subject to Mr. Tomb’s continued service, 25% of the shares subject to the award will vest on the first anniversary of the grant date and the remaining 75% of the shares subject to the award will vest in 12 substantially equal quarterly installments thereafter. Mr. Tomb was also granted a restricted stock unit award for 3,386 shares of the Pure’s Class A common stock, which represents a pro-rata amount of the annual equity compensation provided to our directors. The award will vest on the day prior to Pure’s upcoming annual stockholder meeting, subject to Mr. Tomb’s continued service. These equity awards are subject to the terms and conditions of Pure's 2015 Equity Incentive Plan and the related award agreements. Furthermore, Mr. Tomb is entitled to an annual cash retainer for his service in accordance with Pure's director compensation policy.

In connection with his appointment to the Board, Mr. Tomb will execute Pure's standard form of indemnity agreement for directors, which was filed as Exhibit 10.9 to Pure's Annual Report on Form 10-K (File No. 001-37570) filed with the Securities and Exchange Commission on March 26, 2019.

There is no arrangement or understanding between Mr. Tomb and any other person pursuant to which Mr. Tomb was elected as a director of Pure. There are no family relationships between Mr. Tomb and any director or executive officer of Pure, and, other than as described above, no transactions involving Mr. Tomb that would require disclosure under Item 404(a) of Regulation S-K.

Item 9.01. Financial Statements and Exhibits.
 
(d) Exhibits.
The following exhibit is furnished herewith:

Exhibit No.	  	Description	
99.1	  	Press Release entitled "Pure Storage Announces Fourth Quarter Fiscal 2020 Financial Results"	

SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Pure Storage, Inc.	
	(Registrant)	
 	 				
			By:	 	/s/ Kevan Krysler	
			 	 	Kevan Krysler	
			 	 	Chief Financial Officer	
February 27, 2020

Exhibit 99.1
 
Pure Storage Announces Fourth Quarter and Full Year Fiscal 2020 Financial Results
 
Pure achieved record bookings, revenues, and non-GAAP gross margin in Q4

MOUNTAIN VIEW, Calif. - February 27, 2020 -- Pure Storage (NYSE: PSTG), the data solutions leader delivering a modern data experience, today announced financial results for its fourth quarter and full-year ended February 2, 2020.

“Pure finished the year with the strongest growth and margin profile in the industry,” said Charles Giancarlo, Chairman, and CEO, Pure Storage. “We are well-positioned for a successful year ahead with a growing and robust technology portfolio, and our strategy to deliver the Modern Data Experience.”

Key Financial Highlights

•Q4 Revenue; $492.0 million, up 17% year-over-year
•Full-year revenue $1.643 billion, up 21% year-over-year

•Q4 GAAP gross margin 70.8%; non-GAAP gross margin 72.1%
•Full-year GAAP gross margin 69.0%; non-GAAP gross margin 70.5%

•Q4 GAAP operating loss $0.7 million; non-GAAP operating profit $60.9 million
•Full-year GAAP operating loss $191.3 million; non-GAAP operating profit $55.6 million

•Q4 GAAP operating margin -0.1%; non-GAAP operating margin 12.4%
•Full year GAAP operating margin -11.6%; non-GAAP operating margin 3.4%

•Q4 operating cash flow was $69.9 million, down -14% year-over-year
•Full-year operating cash flow was $189.6 million, up 15% year-over-year

•Q4 free cash flow was $56.2 million, up 9% year-over-year
•Full-year free cash flow was $101.7 million, up 59% year-over-year

“Our Q4 performance was the result of solid execution and growth from our expanding product and subscription services portfolio,” said Kevan Krysler, CFO, Pure Storage. “Through expansion of our portfolio, we look forward to continued industry leading growth rates and gross margins.”

Recent Company Highlights

Customer Traction: Pure added more than 500 new customers in the quarter equating to greater than five new customers per day, reaching over 7,500 total customers.

Advancing the Modern Data Experience:

•Today, Pure announced availability for the third-generation all-NVMe FlashArray//X family that provides customers with higher performance and enables faster time-to-market. With our one-of-a-kind, industry-first EvergreenTM Storage model, customers have access to continuous innovation from Pure that includes these and future updates to its product and solutions suite. Read more in the press release here.
•Pure continues to advance its multi-cloud strategy with the beta launch of Cloud Block Store on Microsoft Azure. Pure also joined Google Cloud’s Anthos Ready Storage Initiative for hybrid cloud environments earlier this month.

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Industry Recognition: In Q4, leading peer review site Gartner Peer Insights recognized FlashArray//X with a Customers’ Choice distinction for Best Primary Storage in 2020 as reviewed by customers.

Guidance

Pure Storage’s full-year fiscal 2021:

•Revenue of approximately $1.90 billion
•Non-GAAP gross margin of approximately 69.5%
•Non-GAAP operating profit of approximately $60 million

Pure Storage’s first-quarter fiscal 2021 guidance is as follows:

•Revenue of approximately $365 million
•Non-GAAP gross margin of approximately 69.5%
•Non-GAAP operating loss of approximately $40 million

Conference Call Information

Pure will host a teleconference to discuss the fourth quarter and full-year fiscal 2020 results at 2:00 p.m. (PT) on February 27, 2020. Pure will post its supplemental earnings presentation to the Investor Relations website at investor.purestorage.com following the conference call. To Listen via Telephone: (866) 393-4306 or (734) 385-2616 (for international callers) with passcode 9329497. To Listen via the Internet: A live and replay audio broadcast of the conference call with corresponding slides will be available at investor.purestorage.com.

Replay: A telephone playback of this conference call is scheduled to be available two hours after the call ends on Thursday, February 27, 2020, through March 12, 2020. The replay will be accessible by calling (855) 859-2056 or (404) 537-3406 (for international callers), with conference ID 9329497.

Upcoming Events

Pure will be presenting at KeyBanc Emerging Technology Conference on March 3rd at 3.00 p.m. (PST) and the Morgan Stanley Technology, Media & Telecom Conference on March 4th at 12.30 p.m. (PST). The presentations from these events will be webcast live, and all information will be available on the investor relation website at investor.purestorage.com.

About Pure Storage

Pure Storage (NYSE: PSTG) helps modern organizations turn data into business advantage. One of the fastest-growing enterprise IT companies in history, Pure helps customers put data to use while reducing the complexity and expense of managing the infrastructure behind it. Pure delivers a modern data experience that empowers organizations to run their operations as a true, automated, storage as-a-service model seamlessly across multiple clouds. And with a certified NPS customer satisfaction score in the top one percent of B2B companies, Pure's ever-expanding list of customers are among the happiest in the world.

Analyst Recognition:
Pure Storage has been named a Leader in the 2019 Gartner Magic Quadrant for Primary Storage.

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Forward Looking Statements

This press release contains forward-looking statements regarding our products, business and operations, including our guidance for the first quarter and full year fiscal 2021, our beliefs about our bookings, growth and market share, our expectations regarding product and technology differentiation, including our new products, strategy and adoption of subscription services, and other statements regarding our products, business, operations and results. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, those risks and uncertainties included under the captions "Risk Factors" and elsewhere in our filings and reports with the U.S. Securities and Exchange Commission, which are available on our Investor Relations website at investor.purestorage.com and on the SEC website at www.sec.gov. Additional information is also set forth in our Annual Report on Form 10-K for the year ended February 2, 2020. All information provided in this release and in the attachments is as of February 27, 2020, and we undertake no duty to update this information unless required by law.

Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share, free cash flow, and free cash flow as a percentage of revenue.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures such as stock-based compensation expense, payments to former shareholders of acquired company, payroll tax expense related to stock-based activities, amortization of debt discount and debt issuance costs, and amortization of intangible assets acquired from acquisitions that may not be indicative of our ongoing core business operating results. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when analyzing historical performance and liquidity and planning, forecasting, and analyzing future periods. The presentation of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for, our financial results prepared in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

For a reconciliation of these non-GAAP financial measures to GAAP measures, please see the tables captioned "Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures" and "Reconciliation from net cash provided by operating activities to free cash flow" included at the end of this release.

Matthew Danziger - Investor Relations, Pure Storage
ir@purestorage.com
Rena Fallstrom - Public Relations, Pure Storage
pr@purestorage.com

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PURE STORAGE, INC.
Condensed Consolidated Balance Sheets
(in thousands, unaudited)

		Fiscal Year Ended	
		2020		2019	
 					
Assets		 		 	
Current assets:		 		 	
Cash and cash equivalents		$	362,635 	 		$	447,990 	 	
Marketable securities		936,518 	 		749,482 	 	
Accounts receivable, net of allowance of $542 and $660		458,643 	 		378,729 	 	
Inventory		38,518 	 		44,687 	 	
Deferred commissions, current		37,148 	 		29,244 	 	
Prepaid expenses and other current assets		56,930 	 		51,695 	 	
Total current assets		1,890,392 	 		1,701,827 	 	
Property and equipment, net		122,740 	 		125,353 	 	
Operating lease right-of-use assets		112,854 	 		— 	 	
Deferred commissions, non-current		102,056 	 		85,729 	 	
Intangible assets, net		58,257 	 		20,118 	 	
Goodwill		37,584 	 		10,997 	 	
Restricted cash		15,287 	 		15,823 	 	
Other assets, non-current		25,034 	 		13,178 	 	
Total assets		$	2,364,204 	 		$	1,973,025 	 	
					
Liabilities and stockholders' equity		 		 	
Current liabilities:		 		 	
Accounts payable		$	77,651 	 		$	103,462 	 	
Accrued compensation and benefits		106,592 	 		99,910 	 	
Accrued expenses and other liabilities		47,223 	 		39,860 	 	
Operating lease liabilities, current		27,264 	 		— 	 	
Deferred revenue, current		356,011 	 		266,584 	 	
Total current liabilities		614,741 	 		509,816 	 	
Convertible senior notes, net		477,007 	 		449,828 	 	
Operating lease liabilities, non-current		92,977 	 		— 	 	
Deferred revenue, non-current		341,277 	 		269,336 	 	
Deferred income taxes, non-current		5,323 	 		— 	 	
Other liabilities, non-current		2,761 	 		6,265 	 	
Total liabilities		1,534,086 	 		1,235,245 	 	
					
Stockholders’ equity:		 		 	
Common stock and additional paid-in capital		2,107,605 	 		1,820,067 	 	
Accumulated other comprehensive income (loss)		5,449 	 		(338)	 	
Accumulated deficit		(1,282,936)	 		(1,081,949)	 	
Total stockholders' equity		830,118 	 		737,780 	 	
Total liabilities and stockholders' equity		$	2,364,204 	 		$	1,973,025 	 	

4

PURE STORAGE, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data, unaudited)

 		Fourth Quarter of		Fiscal Year Ended	
 		2020		2019		2020		2019	
 									
Revenue:		 		 		 		 	
Product		$	376,517 	 		$	340,137 	 		$	1,238,654 	 		$	1,075,586 	 	
Subscription services		115,487 	 		82,079 	 		404,786 	 		284,238 	 	
Total revenue		492,004 	 		422,216 	 		1,643,440 	 		1,359,824 	 	
									
Cost of revenue:									
Product (1)		103,510 	 		110,762 	 		362,970 	 		352,054 	 	
Subscription services (1)		40,284 	 		30,758 	 		146,916 	 		105,474 	 	
Total cost of revenue		143,794 	 		141,520 	 		509,886 	 		457,528 	 	
									
Gross profit		348,210 	 		280,696 	 		1,133,554 	 		902,296 	 	
									
Operating expenses:									
Research and development (1)		114,904 	 		96,630 	 		433,662 	 		349,936 	 	
Sales and marketing (1)		190,389 	 		171,092 	 		728,022 	 		584,111 	 	
General and administrative (1)		43,611 	 		37,934 	 		163,153 	 		137,506 	 	
	
Total operating expenses		348,904 	 		305,656 	 		1,324,837 	 		1,071,553 	 	
									
Loss from operations		(694)	 		(24,960)	 		(191,283)	 		(169,257)	 	
Other income (expense), net		(924)	 		(96)	 		(3,383)	 		(8,016)	 	
Loss before provision for income taxes		(1,618)	 		(25,056)	 		(194,666)	 		(177,273)	 	
Income tax provision		3,033 	 		699 	 		6,321 	 		1,089 	 	
Net loss		$	(4,651)	 		$	(25,755)	 		$	(200,987)	 		$	(178,362)	 	
									
Net loss per share attributable to common
   stockholders, basic and diluted		$	(0.02)	 		$	(0.11)	 		$	(0.79)	 		$	(0.77)	 	
Weighted-average shares used in computing net
   loss per share attributable to common
   stockholders, basic and diluted		259,218 	 		239,571 	 		252,820 	 		232,042 	 	

(1) Includes stock-based compensation expense as follows:

Cost of revenue -- product		$	889 	 		$	761 	 		$	3,732 	 		$	2,951 	 	
Cost of revenue -- subscription services		3,302 	 		3,438 	 		14,403 	 		12,378 	 	
Research and development		26,726 	 		24,528 	 		107,658 	 		92,484 	 	
Sales and marketing		16,389 	 		16,460 	 		67,560 	 		66,350 	 	
General and administrative		8,857 	 		9,520 	 		33,352 	 		36,482 	 	
Total stock-based compensation expense		$	56,163 	 		$	54,707 	 		$	226,705 	 		$	210,645 	 	

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PURE STORAGE, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)

 		Fourth Quarter of		Fiscal Year Ended	
 		2020		2019		2020		2019	
 									
Cash flows from operating activities		 		 		 		 	
Net loss		$	(4,651)	 		$	(25,755)	 		$	(200,987)	 		$	(178,362)	 	
Adjustments to reconcile net loss to net cash provided by operating activities:									
Depreciation and amortization		22,925 	 		19,497 	 		89,710 	 		70,878 	 	
Amortization of debt discount and debt issuance costs		6,993 	 		6,617 	 		27,179 	 		21,031 	 	
Stock-based compensation expense		56,163 	 		54,707 	 		226,705 	 		210,645 	 	
Other		1,819 	 		(2)	 		1,336 	 		(5,039)	 	
Changes in operating assets and liabilities, net of effects of acquisitions:									
Accounts receivable, net		(96,521)	 		(73,026)	 		(79,442)	 		(135,649)	 	
Inventory		(329)	 		4,814 	 		2,393 	 		(12,289)	 	
Deferred commissions		(16,073)	 		(18,533)	 		(24,231)	 		(27,660)	 	
Prepaid expenses and other assets		(18,198)	 		(8,968)	 		(16,734)	 		(6,972)	 	
Operating lease right-of-use assets		6,549 	 		— 	 		26,511 	 		— 	 	
Accounts payable		16,388 	 		2,493 	 		(18,856)	 		14,293 	 	
Accrued compensation and other liabilities		47,059 	 		44,218 	 		20,296 	 		51,810 	 	
Operating lease liabilities		(6,357)	 		— 	 		(25,377)	 		— 	 	
Deferred revenue		54,091 	 		74,732 	 		161,071 	 		161,737 	 	
Net cash provided by operating activities		69,858 	 		80,794 	 		189,574 	 		164,423 	 	
									
Cash flows from investing activities									
Purchases of property and equipment		(13,641)	 		(29,439)	 		(87,847)	 		(100,246)	 	
Acquisitions, net of cash acquired		— 	 		— 	 		(51,594)	 		(13,899)	 	
Purchases of intangible assets		— 	 		— 	 		(9,000)	 		— 	 	
Purchase of other investment		— 	 		(5,000)	 		— 	 		(5,000)	 	
Purchases of marketable securities		(155,556)	 		(107,109)	 		(795,580)	 		(665,357)	 	
Sales of marketable securities		83,733 	 		1,076 	 		200,251 	 		19,878 	 	
Maturities of marketable securities		73,402 	 		97,231 	 		419,059 	 		253,280 	 	
Net cash used in investing activities		(12,062)	 		(43,241)	 		(324,711)	 		(511,344)	 	
									
Cash flows from financing activities									
	
Net proceeds from exercise of stock options		17,095 	 		4,429 	 		42,899 	 		47,771 	 	
Proceeds from issuance of common stock under employee stock purchase plan		7 	 		— 	 		43,298 	 		33,444 	 	
Proceeds from issuance of convertible senior notes, net of issuance costs		— 	 		— 	 		— 	 		562,062 	 	
Payment for purchase of capped calls		— 	 		— 	 		— 	 		(64,630)	 	
Repayment of debt acquired from acquisition		— 	 		— 	 		(11,555)	 		(6,101)	 	
Tax withholding on vesting of restricted stock		(1,592)	 		(632)	 		(10,379)	 		(632)	 	
Repurchase of common stock		(15,017)	 		— 	 		(15,017)	 		(20,000)	 	
Net cash provided by financing activities		493 	 		3,797 	 		49,246 	 		551,914 	 	
Net increase (decrease) in cash and cash equivalents and restricted cash		58,289 	 		41,350 	 		(85,891)	 		204,993 	 	
Cash, cash equivalents and restricted cash, beginning of period		319,633 	 		422,463 	 		463,813 	 		258,820 	 	
Cash, cash equivalents and restricted cash, end of period		$	377,922 	 		$	463,813 	 		$	377,922 	 		$	463,813 	 	

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Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures

The following table presents non-GAAP gross margins by revenue source before certain items (in thousands except percentages, unaudited):

 	Fourth Quarter of		Fourth Quarter of	
	2020		2019	
 	GAAP
results		GAAP
gross
margin (a)		Adjustment	 	Non-
GAAP
results		Non-
GAAP
gross
margin (b)		GAAP
results		GAAP
gross
margin (a)		Adjustment		Non-
GAAP
results		Non-
GAAP
gross
margin (b)	
																				
					$	889 	 	(c)									$	761 	 	(c)				
					14 	 	(d)									10 	 	(d)				
					2,074 	 	(e)									632 	 	(e)				
Gross profit --
   product	$	273,007 	 		72.5 	%		$	2,977 	 		$	275,984 	 		73.3 	%		$	229,375 	 		67.4 	%		$	1,403 	 		$	230,778 	 		67.8 	%	
 	 		 																				
					$	3,302 	 	(c)									$	3,438 	 	(c)				
					88 	 	(d)									63 	 	(d)				
Gross profit --
  subscription services	$	75,203 	 		65.1 	%		$	3,390 	 	 	$	78,593 	 		68.1 	%		$	51,321 	 		62.5 	%		$	3,501 	 	 	$	54,822 	 		66.8 	%	
																				
 	 		 		$	4,191 	 	(c)										$	4,199 	 	(c)					
					102 	 	(d)									73 	 	(d)				
					2,074 	 	(e)									632 	 	(e)				
Total gross profit	$	348,210 	 		70.8 	%		$	6,367 	 	 	$	354,577 	 		72.1 	%		$	280,696 	 		66.5 	%		$	4,904 	 	 	$	285,600 	 		67.6 	%	

(a) GAAP gross margin is defined as GAAP gross profit divided by revenue.
(b) Non-GAAP gross margin is defined as non-GAAP gross profit divided by revenue.
(c) To eliminate stock-based compensation expense.
(d) To eliminate payroll tax expense related to stock-based activities.
(e) To eliminate amortization expense of acquired intangible assets.

7

The following table presents non-GAAP gross margins by revenue source before certain items (in thousands except percentages, unaudited):
																																				
	Fiscal Year	
	2020	
	GAAP results		GAAP gross margin (a)		Adjustment				Non-
GAAP
results		Non-
GAAP
gross
margin (b)	
														
					$	3,732 	 		(c)							
					110 	 		(d)							
					6,900 	 		(e)							
Gross profit -- product	$	875,684 	 		70.7 	%		$	10,742 	 					$	886,426 	 		71.6 	%	
															
					$	14,403 	 		(c)							
					409 	 		(d)							
Gross profit -- subscription services	$	257,870 	 		63.7 	%		$	14,812 	 					$	272,682 	 		67.4 	%	
														
					$	18,135 	 		(c)	 							
					519 	 		(d)							
					6,900 	 		(e)							
Total gross profit	$	1,133,554 	 		69.0 	%		$	25,554 	 					$	1,159,108 	 		70.5 	%	

(a) GAAP gross margin is defined as GAAP gross profit divided by revenue.
(b) Non-GAAP gross margin is defined as non-GAAP gross profit divided by revenue.
(c) To eliminate stock-based compensation expense.
(d) To eliminate payroll tax expense related to stock-based activities.
(e) To eliminate amortization expense of acquired intangible assets.

8

The following table presents certain non-GAAP consolidated results before certain items (in thousands, except per share amounts and percentages, unaudited):

 	Fourth Quarter of		Fourth Quarter of	
	2020		2019	
 	GAAP
results		GAAP
operating
margin (a)		Adjustment	 	Non-
GAAP
results		Non-
GAAP
operating
margin (b)		GAAP
results		GAAP
operating
margin (a)		Adjustment	 	Non-
GAAP
results		Non-
GAAP
operating
margin (b)	
																				
					$	56,163 	 	(c)									$	54,707 	 	(c)				
					1,935 	 	(d)									— 	 					
					1,401 	 	(e)									763 	 	(e)				
					2,074 	 	(f)									632 	 	(f)				
Operating income (loss)	$	(694)	 		-0.1 	%		$	61,573 	 	 	$	60,879 	 		12.4 	%		$	(24,960)	 		-5.9 	%		$	56,102 	 	 	$	31,142 	 		7.4 	%	
																				
 	 		 		$	56,163 	 	(c)	 		 				 		$	54,707 	 	(c)			 	
					1,935 	 	(d)									— 	 					
					1,401 	 	(e)									763 	 	(e)				
					2,074 	 	(f)									632 	 	(f)				
					6,993 	 	(g)									6,616 	 	(g)				
Net income (loss)	$	(4,651)	 		 		$	68,566 	 	 	$	63,915 	 		 		$	(25,755)	 		 		$	62,718 	 	 	$	36,963 	 		 	
Net income (loss) per share -- diluted	$	(0.02)	 		 		 	 	$	0.23 	 		 		$	(0.11)	 		 		 	 	$	0.14 	 		 	
Weighted-average shares used in per share calculation -- diluted	259,218		 		17,984	(h)	277,202		 		239,571 	 		 		24,097 	 	(h)	263,668		 	

(a) GAAP operating margin is defined as GAAP operating loss divided by revenue.
(b) Non-GAAP operating margin is defined as non-GAAP operating income divided by revenue.
(c) To eliminate stock-based compensation expense.
(d) To eliminate payments to former shareholders of acquired company.
(e) To eliminate payroll tax expense related to stock-based activities.
(f) To eliminate amortization expense of acquired intangible assets.
(g) To eliminate amortization expense of debt discount and debt issuance costs related to our convertible debt.
(h) To include effect of dilutive securities (employee stock options, restricted stock, and shares from employee stock purchase plan (ESPP)).

9

The following table presents certain non-GAAP consolidated results before certain items (in thousands, except per share amounts and percentages, unaudited):
																														
	Fiscal Year	
	2020	
	GAAP results		GAAP operating margin (a)		Adjustment		Non- GAAP results		Non- GAAP operating margin (b)	
										
					$	226,705 	 	(c)				
					6,184 	 	(d)				
					7,040 	 	(e)				
					6,900 	 	(f)				
Operating income (loss)	$	(191,283)	 		-11.6 	%		$	246,829 	 		$	55,546 	 		3.4 	%	

(a) GAAP operating margin is defined as GAAP operating loss divided by revenue.
(b) Non-GAAP operating margin is defined as non-GAAP operating income divided by revenue.
(c) To eliminate stock-based compensation expense.
(d) To eliminate payments to former shareholders of acquired company.
(e) To eliminate payroll tax expense related to stock-based activities.
(f) To eliminate amortization expense of acquired intangible assets.

10

Reconciliation from net cash provided by operating activities to free cash flow (in thousands except percentages, unaudited):

 		Fourth Quarter			Fiscal Year		
 		2020		2019		Year-over-Year % change	2020		2019	Year-over-Year % change	
Net cash provided by operating activities		$	69,858 	 		$	80,794 	 		(14)	%	$	189,574 	 		$	164,423 	 	15 	%	
Less: purchases of property and equipment		(13,641)	 		(29,439)	 				(87,847)	 		(100,246)	 			
	
Free cash flow (non-GAAP)		$	56,217 	 		$	51,355 	 		9 	%	$	101,727 	 		$	64,177 	 	59 	%	

											
Free cash flow as % of revenue		11.4 	%		12.2 	%			6.2 	%		4.7 	%		

11