PURE STORAGE, INC., 10-Q filed on 12/9/2020
Quarterly Report
v3.20.2
Cover Page - shares
9 Months Ended
Nov. 01, 2020
Dec. 04, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Nov. 01, 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  
Title of 12(b) Security Class A Common Stock, $0.0001 par value per share  
Trading Symbol PSTG  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding (in shares)   272,810,989
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Entity Central Index Key 0001474432  
Current Fiscal Year End Date --01-31  
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Nov. 01, 2020
Feb. 02, 2020
Current assets:    
Cash and cash equivalents $ 263,702 $ 362,635
Marketable securities 937,718 936,518
Accounts receivable, net of allowance of $542 and $558 378,193 458,643
Inventory 43,152 38,518
Deferred commissions, current 42,728 37,148
Prepaid expenses and other current assets 77,813 56,930
Total current assets 1,743,306 1,890,392
Property and equipment, net 158,200 122,740
Operating lease right-of-use assets 137,856 112,854
Deferred commissions, non-current 109,361 102,056
Intangible assets, net 81,075 58,257
Goodwill 360,997 37,584
Restricted cash 11,349 15,287
Other assets, non-current 50,851 25,034
Total assets 2,652,995 2,364,204
Current liabilities:    
Accounts payable 89,369 77,651
Accrued compensation and benefits 83,163 106,592
Accrued expenses and other liabilities 47,939 47,223
Operating lease liabilities, current 30,902 27,264
Deferred revenue, current 408,086 356,011
Total current liabilities 659,459 614,741
Long-term debt 748,422 477,007
Operating lease liabilities, non-current 124,382 92,977
Deferred revenue, non-current 354,678 341,277
Other liabilities, non-current 30,973 8,084
Total liabilities 1,917,914 1,534,086
Commitments and contingencies (Note 8)
Stockholders’ equity:    
Preferred stock, par value of $0.0001 per share— 20,000 shares authorized; no shares issued and outstanding 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; 264,008 and 272,040 Class A shares issued and outstanding 27 26
Additional paid-in capital 2,238,714 2,107,579
Accumulated other comprehensive income 9,059 5,449
Accumulated deficit (1,512,719) (1,282,936)
Total stockholders’ equity 735,081 830,118
Total liabilities and stockholders’ equity $ 2,652,995 $ 2,364,204
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Nov. 01, 2020
Feb. 02, 2020
Accounts receivable, allowance $ 558 $ 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) 272,039,767 264,008,000
Shares outstanding (in shares) 272,039,767 264,008,000
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
v3.20.2
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Nov. 01, 2020
Oct. 31, 2019
Nov. 01, 2020
Oct. 31, 2019
Revenue $ 410,619 $ 428,409 $ 1,181,461 $ 1,151,436
Cost of revenue 134,103 127,771 373,394 366,092
Gross profit 276,516 300,638 808,067 785,344
Operating expenses:        
Research and development 122,981 106,663 350,079 318,758
Sales and marketing 172,282 184,819 517,149 537,633
General and administrative 46,467 37,416 132,063 119,542
Restructuring and other 0 0 22,990 0
Total operating expenses 341,730 328,898 1,022,281 975,933
Loss from operations (65,214) (28,260) (214,214) (190,589)
Other income (expense), net (4,887) 9 (6,700) (2,459)
Loss before provision for income taxes (70,101) (28,251) (220,914) (193,048)
Provision for income taxes 4,121 1,731 8,869 3,288
Net loss $ (74,222) $ (29,982) $ (229,783) $ (196,336)
Net loss per share attributable to common stockholders, basic and diluted (in dollars per share) $ (0.28) $ (0.12) $ (0.87) $ (0.78)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted (in shares) 269,144 255,047 265,626 250,618
Product        
Revenue $ 274,470 $ 323,268 $ 793,718 $ 862,137
Cost of revenue 86,661 89,998 240,677 259,460
Subscription services        
Revenue 136,149 105,141 387,743 289,299
Cost of revenue $ 47,442 $ 37,773 $ 132,717 $ 106,632
v3.20.2
Condensed Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Nov. 01, 2020
Oct. 31, 2019
Nov. 01, 2020
Oct. 31, 2019
Statement of Comprehensive Income [Abstract]        
Net loss $ (74,222) $ (29,982) $ (229,783) $ (196,336)
Other comprehensive income (loss) net of tax:        
Unrealized net gains (losses) on available-for-sale securities (2,869) 1,927 4,736 5,725
Less: reclassification adjustment for net gains on available-for-sale securities included in net loss (257) (220) (1,126) (271)
Change in unrealized net gains (losses) on available-for-sale securities (3,126) 1,707 3,610 5,454
Comprehensive loss $ (77,348) $ (28,275) $ (226,173) $ (190,882)
v3.20.2
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 Units
Additional Paid-in Capital
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)   4,797            
Issuance of common stock upon exercise of stock options 26,006 $ 1 26,005          
Stock-based compensation expense 170,542   170,542          
Vesting of restricted stock units (in shares)           6,884    
Vesting of restricted stock units 0         $ 1 $ (1)  
Net issuance of restricted stock (in shares)               972
Tax withholding on vesting of restricted stock (8,787)   (8,787)          
Common stock issued under employee stock purchase plan (in shares)   3,743            
Common stock issued under employee stock purchase plan 43,291   43,291          
Other comprehensive income (loss) 5,454     5,454        
Net loss (196,336)       (196,336)      
Ending balance (in shares) at Oct. 31, 2019   259,920            
Ending balance at Oct. 31, 2019 777,950 $ 26 2,051,093 5,116 (1,278,285)      
Beginning balance (in shares) at Jul. 31, 2019   255,752            
Beginning balance at Jul. 31, 2019 737,539 $ 26 1,982,407 3,409 (1,248,303)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of common stock upon exercise of stock options (in shares)   934            
Issuance of common stock upon exercise of stock options 6,715 $ 0 6,715          
Stock-based compensation expense 52,336   52,336          
Vesting of restricted stock units (in shares)           2,557    
Vesting of restricted stock units           $ 0 0  
Net issuance of restricted stock (in shares)   (93)            
Tax withholding on vesting of restricted stock (1,614)   (1,614)          
Common stock issued under employee stock purchase plan (in shares)   770            
Common stock issued under employee stock purchase plan 11,249   11,249          
Other comprehensive income (loss) 1,707     1,707        
Net loss (29,982)       (29,982)      
Ending balance (in shares) at Oct. 31, 2019   259,920            
Ending balance at Oct. 31, 2019 777,950 $ 26 2,051,093 5,116 (1,278,285)      
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)   4,991            
Issuance of common stock upon exercise of stock options 25,645 $ 1 25,644          
Stock-based compensation expense 179,884   179,884          
Vesting of restricted stock units (in shares)           8,445    
Vesting of restricted stock units           $ 1 (1)  
Tax withholding on vesting of restricted stock (in shares)               305
Tax withholding on vesting of restricted stock (4,080)   (4,080)          
Cancellation and forfeiture of restricted stock (in shares)   317            
Cancellation and forfeiture of restricted stock 0   0          
Common stock issued under employee stock purchase plan (in shares)   3,714            
Common stock issued under employee stock purchase plan 32,439   32,439          
Repurchases of common stock (in shares)   (8,496)            
Repurchases of common stock (111,554) $ (1) (111,553)          
Equity awards assumed in an acquisition 8,802   8,802          
Other comprehensive income (loss) 3,610     3,610        
Net loss (229,783)       (229,783)      
Ending balance (in shares) at Nov. 01, 2020   272,040            
Ending balance at Nov. 01, 2020 735,081 $ 27 2,238,714 9,059 (1,512,719)      
Beginning balance (in shares) at Aug. 02, 2020   267,776            
Beginning balance at Aug. 02, 2020 746,106 $ 27 2,172,391 12,185 (1,438,497)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of common stock upon exercise of stock options (in shares)   678            
Issuance of common stock upon exercise of stock options 4,019 $ 0 4,019          
Stock-based compensation expense 59,734   59,734          
Vesting of restricted stock units (in shares)           2,990    
Vesting of restricted stock units           $ 0 $ 0  
Tax withholding on vesting of restricted stock (in shares)               (86)
Tax withholding on vesting of restricted stock (1,239)   (1,239)          
Cancellation and forfeiture of restricted stock (in shares)               (87)
Common stock issued under employee stock purchase plan (in shares)   2,129            
Common stock issued under employee stock purchase plan 16,418   16,418          
Repurchases of common stock (in shares)   (1,360)            
Repurchases of common stock (21,411) $ 0 (21,411)          
Equity awards assumed in an acquisition 8,802   8,802          
Other comprehensive income (loss) (3,126)     (3,126)        
Net loss (74,222)       (74,222)      
Ending balance (in shares) at Nov. 01, 2020   272,040            
Ending balance at Nov. 01, 2020 $ 735,081 $ 27 $ 2,238,714 $ 9,059 $ (1,512,719)      
v3.20.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Nov. 01, 2020
Oct. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES    
Net loss $ (229,783) $ (196,336)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 49,811 66,785
Amortization of debt discount and debt issuance costs 21,525 20,186
Stock-based compensation expense 179,755 174,790
Impairment of long-lived assets 7,505 0
Other 4,111 (483)
Changes in operating assets and liabilities, net of effects of acquisitions:    
Accounts receivable, net 83,220 17,079
Inventory (4,724) 2,722
Deferred commissions (12,885) (8,158)
Prepaid expenses and other assets (37,606) 1,464
Operating lease right-of-use assets 21,434 19,962
Accounts payable 8,566 (35,244)
Accrued compensation and other liabilities (9,737) (31,011)
Operating lease liabilities (20,444) (19,020)
Deferred revenue 57,860 106,980
Net cash provided by operating activities 118,608 119,716
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchases of property and equipment (73,643) (74,206)
Acquisitions, net of cash acquired (339,806) (51,594)
Purchase of intangible assets 0 (9,000)
Purchases of marketable securities (454,391) (640,024)
Sales of marketable securities 132,207 116,518
Maturities of marketable securities 324,780 345,657
Other (5,000) 0
Net cash used in investing activities (415,853) (312,649)
CASH FLOWS FROM FINANCING ACTIVITIES    
Net proceeds from exercise of stock options 25,677 25,804
Proceeds from issuance of common stock under employee stock purchase plan 32,439 43,291
Proceeds from borrowings, net of issuance costs 251,892 0
Repayment of debt assumed from acquisition 0 (11,555)
Tax withholding on vesting of restricted stock (4,080) (8,787)
Repurchases of common stock (111,554) 0
Net cash provided by financing activities 194,374 48,753
Net decrease in cash, cash equivalents and restricted cash (102,871) (144,180)
Cash, cash equivalents and restricted cash, beginning of period 377,922 463,813
Cash, cash equivalents and restricted cash, end of period 275,051 319,633
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION    
Cash paid for interest 1,062 718
Cash paid for income taxes 8,911 3,398
Cash paid for amounts included in the measurement of lease liabilities 27,336 24,403
Property and equipment purchased but not yet paid 10,644 5,202
Operating lease right-of-use assets obtained in exchange for operating lease liabilities 53,289 14,937
Business Combination, Fair Value of Equity Awards Assumed $ 8,802 $ 0
v3.20.2
Condensed Consolidated Statement of Cash Flows (Parenthetical) - USD ($)
$ in Thousands
Nov. 01, 2020
Oct. 31, 2019
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND CASH EQUIVALENTS AT END OF PERIOD    
Cash and cash equivalents $ 263,702 $ 304,346
Restricted cash 11,349 15,287
Cash, cash equivalents and restricted cash, end of period $ 275,051 $ 319,633
v3.20.2
Business Overview
9 Months Ended
Nov. 01, 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.
v3.20.2
Basis of Presentation and Summary of Significant Accounting Policies
9 Months Ended
Nov. 01, 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 will be January 31, 2021. The third quarter of fiscal 2020 and 2021 ended on October 31, 2019 and November 1, 2020. Unless otherwise stated, all dates refer to the our 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 and assumptions due to risks and uncertainties, including uncertainty in the current economic environment from the ongoing COVID-19 pandemic. 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 fair value of equity assumed, assets acquired and liabilities assumed for business combinations. 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.
In accordance with our 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 of $4.9 million and $19.0 million in the third quarter and first three quarters 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 third quarter of fiscal 2021, we had restricted cash of $15.3 million and $11.3 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 with unrealized loss positions as to whether the declines in fair value were due to credit losses, and record the portion of impairment relating to the credit losses through allowance for credit losses limited to the amount that fair value was less than the amortized cost basis. Realized gains and losses from the sale of marketable securities are determined based on the specific identification method. 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 account for the lease and non-lease components of operating lease contract consideration 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 primarily from two sources: (1) product revenue which includes hardware and embedded software and (2) subscription services revenue which includes Evergreen Storage subscriptions, and our unified subscription that includes Pure as-a-Service 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 provides our customers with a new controller based upon certain terms. 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.
Recent Accounting Pronouncement Not Yet Adopted
In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share (EPS) calculations as a result of these changes. The standard will be effective for us beginning February 7, 2022 and can be applied on either a fully retrospective or modified retrospective basis. Early adoption is permitted for fiscal years beginning after December 15, 2020. We are currently evaluating the impact of this standard on our condensed consolidated financial statements.
v3.20.2
Financial Instruments
9 Months Ended
Nov. 01, 2020
Investments, Debt and Equity Securities [Abstract]  
Financial Instruments Financial Instruments 
Fair Value Measurements
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.
Cash Equivalents, Marketable Securities and Restricted Cash
We measure our cash equivalents, marketable securities, and restricted cash at fair value on a recurring basis. 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. The following tables summarize our cash equivalents, marketable securities and restricted cash by significant investment categories and their assigned levels within the valuation hierarchy at the end of fiscal 2020 and the third 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 Third Quarter of Fiscal 2021
 Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair
Value
Cash EquivalentsMarketable
Securities
Restricted Cash
Level 1
Money market accounts$— $— $— $43,232 $31,883 $— $11,349 
Level 2       
U.S. government treasury notes346,860 3,819 (5)350,674 — 350,674 — 
U.S. government agencies56,723 543 (1)57,265 — 57,265 — 
Corporate debt securities414,234 4,986 (37)419,183 — 419,183 — 
Foreign government bonds20,497 348 (1)20,844 — 20,844 — 
Asset-backed securities88,534 1,219 (1)89,752 — 89,752 — 
Total$926,848 $10,915 $(45)$980,950 $31,883 $937,718 $11,349 
 
The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):
 
At the End of the Third Quarter of Fiscal 2021
 Amortized CostFair Value
Due within one year$360,525 $362,473 
Due in one to five years566,323 575,245 
Total$926,848 $937,718 
 
We review the individual securities that have unrealized losses on a regular basis to evaluate whether or not any security has experienced and expect to experience credit losses which resulted in the decline in fair value. 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 third 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 third 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 Third 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$58,412 $(5)$— $— $58,412 $(5)
U.S. government agencies2,999 (1)— — 2,999 (1)
Corporate debt securities29,930 (37)— — 29,930 (37)
Foreign government bonds3,234 (1)— — 3,234 (1)
Asset-backed securities6,786 (1)— — 6,786 (1)
Total$101,361 $(45)$— $— $101,361 $(45)
 
Realized gains or losses on sale of marketable securities were not significant for all periods presented.
Fair Value Measurements of Other Financial Instruments
We also 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 third quarter of fiscal 2021 to be a Level 2 measurement due to its limited trading activity. Refer to Note 7 for the carrying amount and estimated fair value of our Notes at the end of the third quarter of fiscal 2021.
v3.20.2
Business Combination
9 Months Ended
Nov. 01, 2020
Business Combinations [Abstract]  
Business Combination Business Combination
In October 2020, we acquired all outstanding stock of Portworx Inc. (Portworx), a privately-held container storage company that provides a Kubernetes data services platform for cloud native applications based in Los Altos, California. The transaction costs associated with the acquisition were not material and expensed as incurred. The total purchase consideration for the acquisition of Portworx was $353.0 million, which consisted of the following (in thousands):
Cash$344,213 
Fair value of stock options assumed8,802 
Total$353,015 
We assumed certain unvested and outstanding stock options for Portworx's common stock. These stock options were converted into stock options for shares of our common stock. The fair value of the exchanged options determined using the Black-Scholes option pricing model was $26.8 million, of which $8.8 million attributable to services performed prior to the acquisition date was allocated to purchase consideration. The remaining fair value of $18.0 million was allocated to future services and will be expensed over the remaining service periods as stock-based compensation expense. In addition, we assumed restricted stock units (RSUs) outstanding under the 2020 Portworx Equity Incentive Plan with a fair value of $31.8 million that is being recognized as stock-based compensation expense over a four year vesting period.
The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of the acquisition (in thousands):
AmountEstimated Useful Life
Goodwill$323,413 
Identified intangible assets:
Developed technology21,612 5 years
Customer relationships6,116 7 years
Trade name3,762 3 years
Cash4,407 
Net liabilities assumed(6,295)
Total$353,015 
Goodwill generated from this acquisition is primarily attributable to the assembled workforce and expected post-acquisition synergies from combining Portworx container data services with our data services platform to expand our capabilities to support Kubernetes and containers. Goodwill is not deductible for tax purposes. The preliminary fair values of developed technology, customer relationships and trade name were estimated by applying the excess earnings method, with-and-without method, and the relief-from-royalty method, respectively, all of which are under the income approach whose underlying inputs are considered Level 3. The preliminary calculations and valuations of fair values assigned to assets acquired and liabilities assumed are based on management's estimates and assumptions which may be subject to change as we obtain additional information. The areas that remain preliminary relate to the fair values of the identified intangible assets acquired and deferred revenue assumed. We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.
In addition, cash payments to certain former shareholders of Portworx totaling $32.2 million are being made over three years subject to continuous employment and are recognized as an operating expense. Of this amount, $11.9 million was deposited in escrow at the acquisition date and recorded as a deferred compensation asset that is included within other assets, non-current in the condensed consolidated balance sheets.
The results of Portworx have been included in our condensed consolidated statements of operations since the acquisition date and are not material. Pro forma results of operations have not been presented because the acquisition is not material to our results of operations.
v3.20.2
Balance Sheet Components
9 Months Ended
Nov. 01, 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
Third Quarter of Fiscal 2021
Raw materials$2,974 $4,400 
Finished goods35,544 38,752 
Inventory$38,518 $43,152 
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
 
At the End of
 Fiscal 2020
Third Quarter of Fiscal 2021
Test equipment$205,555 $231,406 
Computer equipment and software141,387 173,253 
Furniture and fixtures8,324 8,842 
Leasehold improvements40,356 44,976 
Total property and equipment395,622 458,477 
Less: accumulated depreciation and amortization(272,882)(300,277)
Property and equipment, net$122,740 $158,200 
 
Depreciation and amortization expense related to property and equipment was $20.6 million and $14.9 million for the third quarter of fiscal 2020 and 2021, and $60.3 million and $41.1 million for the first three quarters of fiscal 2020 and 2021. The amount of internal-use software development costs capitalized during the third quarter and first three quarters was not material.
Intangible Assets, Net
Intangible assets, net consist of the following (in thousands):
 
At the End of
 Fiscal 2020
Third 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 $(11,025)$8,100 
Developed technology56,100 (8,035)48,065 77,712 (14,438)63,274 
Customer relationships— — — 6,116 (73)6,043 
Trade name— — — 3,762 (104)3,658 
Intangible assets, net$75,225 $(16,968)$58,257 $106,715 $(25,640)$81,075 
 
 Intangible assets amortization expense was $2.6 million and $3.3 million for the third quarter of fiscal 2020 and 2021, and $6.5 million and $8.7 million for the first three quarters of fiscal 2020 and 2021. At the end of the third quarter of fiscal 2021, the weighted-average remaining amortization period was 3.0 years for technology patents, 5.1 years for developed technology, 6.9 years for customer relationships, and 2.9 years for trade name. We recorded amortization of (i) technology patents in general and administrative expenses due to their defensive nature, (ii) developed technology in cost of product revenue, and (iii) customer relationships and trade name in sales and marketing expenses in the condensed consolidated statements of operations.
At the end of the third 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$4,313 
202216,296 
202315,750 
202415,332 
202514,496 
Thereafter14,888 
Total$81,075 
Goodwill
The change in the carrying amount of goodwill is as follows (in thousands):
Amount
Balance at the end of fiscal 2020
$37,584 
Goodwill acquired323,413 
Balance at the end of the third quarter of fiscal 2021
$360,997 
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
At the End of
 Fiscal 2020
Third Quarter of Fiscal 2021
Taxes payable $9,012 $4,750 
Accrued marketing7,679 11,836 
Accrued travel and entertainment expenses3,829 1,054 
Acquisition consideration6,149 5,704 
Other accrued liabilities20,554 24,595 
Total accrued expenses and other liabilities$47,223 $47,939 
v3.20.2
Deferred Revenue and Commissions
9 Months Ended
Nov. 01, 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): 
Third Quarter of Fiscal
First Three Quarters of Fiscal
2020202120202021
Beginning balance
$118,568 $144,687 $114,973 $139,204 
Additions34,071 36,234 82,381 96,530 
Recognition of deferred commissions(29,508)(28,832)(74,223)(83,645)
Ending balance$123,131 $152,089 $123,131 $152,089 
Of the $152.1 million total deferred commissions balance at the end of the third 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 third quarter and first three quarters 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):

Third Quarter of Fiscal
First Three Quarters of Fiscal
2020202120202021
Beginning balance
$607,263 $724,751 $535,920 $697,288 
Additions142,164 180,285 400,605 467,454 
Recognition of deferred revenue(106,229)(142,272)(293,327)(401,978)
Ending balance$643,198 $762,764 $643,198 $762,764 
Revenue recognized during the third quarter of fiscal 2020 and 2021 from deferred revenue at the beginning of each respective period was $101.4 million and $121.9 million. Revenue recognized during the first three quarters of fiscal 2020 and 2021 from deferred revenue at the beginning of each respective period was $213.2 million and $285.0 million.
Remaining Performance Obligations
Total contracted but not recognized revenue was $1,010.4 million at the end of the third 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. The value of orders that are contracted but have not been fulfilled and that can be canceled by customers, are excluded from remaining performance obligations. Of the $1,010.4 million contracted but not recognized revenue at the end of the third quarter of fiscal 2021, we expect to recognize approximately 43% over the next 12 months, and the remainder thereafter.
v3.20.2
Debt
9 Months Ended
Nov. 01, 2020
Debt Disclosure [Abstract]  
Debt Debt
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.

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
Third Quarter of Fiscal 2021
Liability:
Principal$575,000 $575,000 
Less: debt discount, net of amortization(91,378)(71,408)
Less: debt issuance costs, net of amortization(6,615)(5,170)
Net carrying amount of the Notes$477,007 $498,422 
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 third quarter of fiscal 2021 was $564.6 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 $16.10 on the last day of the third quarter of fiscal 2021, the if-converted value of the Notes of $352.3 million was less than its principal amount. At the end of the third quarter of fiscal 2021, the remaining term of the Notes is 29 months.

The following table sets forth total interest expense recognized related to the Notes for the third quarter and first three quarters of fiscal 2020 and 2021 (in thousands):
Third Quarter of Fiscal
First Three Quarters of Fiscal
2020202120202021
Amortization of debt discount$6,431 $6,799 $18,824 $19,970 
Amortization of debt issuance costs465 491 1,362 1,445 
Total amortization of debt discount and debt issuance costs6,896 7,290 20,186 21,415 
Contractual interest expense181 181 539 539 
Total interest expense related to the Notes$7,077 $7,471 $20,725 $21,954 
Effective interest rate of the liability component5.6 %5.6 %5.6 %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.
Revolving Credit Facility
On August 24, 2020, we entered into a Credit Agreement with a consortium of financial institutions and lenders that provides for a five-year, senior secured revolving credit facility of $300.0 million (Credit Facility). Proceeds from the Credit Facility may be used for general corporate purposes and working capital. The Credit Facility expires, absent default or early termination by us, on the earlier of (i) August 24, 2025 or (ii) 91 days prior to the stated maturity of the Notes unless, on such date and each subsequent day until the Notes are paid in full, the sum of our cash, cash equivalents and marketable securities and the aggregate unused commitments then available to us exceed $625.0 million.
The annual interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.50% to 1.25% or LIBOR (based on one, three or six-month interest periods), subject to a floor of 0%, plus a margin ranging from 1.50% to 2.25%. Interest on revolving loans is payable quarterly in arrears with respect to loans based on the base rate and at the end of an interest period in the case of loans based on LIBOR (or at each three-month interval if the interest period is longer than three months). We are also required to pay a commitment fee on the unused portion of the commitments ranging from 0.25% to 0.40% per annum, payable quarterly in arrears that commenced on September 30, 2020.
In September 2020, we drew down $250.0 million under the Credit Facility which remained outstanding at the end of the third quarter of fiscal 2021. The outstanding loan bore interest at the one-month LIBOR of approximately 1.65% resulting in interest expense of $0.3 million during the third quarter of fiscal 2021.
Loans under the Credit Facility are collateralized by substantially all of our assets and subject to certain restrictions and two financial ratios measured as of the last day of each fiscal quarter, commencing with the fiscal quarter ending January 31, 2021. We were in compliance with all covenants under the Credit Facility at the end of the third quarter of fiscal 2021.
v3.20.2
Commitments and Contingencies
9 Months Ended
Nov. 01, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Letters of Credit
At the end of fiscal 2020 and the third quarter of fiscal 2021, we had outstanding letters of credit in the aggregate amount of $11.5 million and $7.5 million, in connection with our facility leases. In September 2020, we executed an amendment that reduced our letter of credit related to our headquarters lease by $3.6 million. 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 third 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.
v3.20.2
Leases
9 Months Ended
Nov. 01, 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 third quarter of fiscal 2021, we executed an early renewal that modified an existing data center lease that resulted in total incremental undiscounted cash flows of $27.3 million. The components of lease costs during the periods presented were as follows (in thousands):
Third Quarter of Fiscal
First Three Quarters of Fiscal
2020202120202021
Fixed operating lease cost$8,509 $9,494 $25,220 $27,775 
Variable lease cost (1)
2,122 2,455 6,464 7,397 
Short-term lease cost (12 months or less)1,412 1,502 3,757 4,568 
Total lease cost$12,043 $13,451 $35,441 $39,740 
____________________________________
(1) Variable lease cost for the third quarter and first three quarters of fiscal 2020 and 2021 predominantly included common area maintenance charges.
At the end of the third quarter of fiscal 2021, the weighted-average remaining lease term is 5.4 years and the weighted-average discount rate is 5.91%. Future lease payments under our non-cancelable operating leases at the end of the third quarter of fiscal 2021 were as follows (in thousands):
Fiscal Years EndingOperating Leases
The remainder of 2021$9,942 
202238,880 
202335,260 
202429,983 
202526,660 
Thereafter43,602 
Total future lease payments184,327 
Less: imputed interest(29,043)
Present value of lease liabilities$155,284 
v3.20.2
Restructuring and Other
9 Months Ended
Nov. 01, 2020
Restructuring and Related Activities [Abstract]  
Restructuring and Other Restructuring and Other
During the first three quarters of fiscal 2021, we ceased use of certain leased facilities. The unamortized costs of $7.5 million relating to operating lease right-of-use assets and leasehold improvements for these leases were expensed.
During the first three quarters of fiscal 2021, we effected workforce realignment plans to streamline our operations and recognized $6.6 million of restructuring costs related to one-time involuntary termination benefit costs. The restructuring charges are included in restructuring and other expenses in our condensed consolidated statement of operations.
During the first three quarters of fiscal 2021, we incurred incremental costs of $9.8 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 these costs, $8.9 million is included in restructuring and other expenses and $0.9 million is included in cost of revenue in our consolidated statements of operations for the first three quarters of fiscal 2021.
v3.20.2
Stockholders' Equity
9 Months Ended
Nov. 01, 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 third 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 third 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 third quarter of fiscal 2021, 272,039,767 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. During the third quarter of fiscal 2021, we repurchased and retired 1,360,000 shares of common stock at an average purchase price of $15.72 per share for an aggregate repurchase price of $21.4 million. During the first three quarters of fiscal 2021, we repurchased and retired 8,496,191 shares of common stock at an average purchase price of $13.11 per share for an aggregate repurchase price of approximately $111.4 million. At the end of the third quarter of fiscal 2021, $23.6 million remained available for future share repurchases under our current repurchase authorization.
v3.20.2
Equity Incentive Plans
9 Months Ended
Nov. 01, 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 serves as the successor to our 2009 Plan and provides for grants of incentive stock options to our employees and non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance stock awards, performance cash awards, and other forms of stock awards to our employees, directors and consultants. Our equity awards generally vest over a two to four year period and expire no later than ten years from the date of grant.
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.
In conjunction with the Portworx acquisition, we assumed (i) certain options to purchase common stock outstanding under Portworx's 2014 Stock Incentive Plan and (ii) RSUs outstanding under the 2020 Portworx Equity Incentive Plan (collectively, the "Assumed Equity Awards"). The Assumed Equity Awards were converted into corresponding awards for shares of our common stock and retained substantially all of the terms and conditions under which they were granted. Approximately 3.9 million shares are reserved for issuance in connection with the Assumed Equity Awards. Refer to Note 4 for further information on the equity awards assumed resulting from the Portworx acquisition.
2015 Amended and Restated Employee Stock Purchase Plan
Under our Amended and Restated 2015 Employee Stock Purchase Plan (2015 ESPP), our board of directors (or a committee thereof) has the authority 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, a dollar cap of $7,500 per purchase period, or $25,000 in any calendar year (as determined under applicable tax rules). 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 month 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 $4.3 million and $6.8 million during the third quarter of fiscal 2020 and 2021, and $20.0 million and $18.8 million during the first three quarters of fiscal 2020 and 2021. At the end of the third quarter of fiscal 2021, total unrecognized stock-based compensation cost related to our 2015 ESPP was $40.9 million, which is expected to be recognized over a weighted-average period of 1.4 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 assumed in an acquisition1,891,349 1.75   
Options exercised(4,990,458)5.14   
Options forfeited(344,685)16.16   
Balance at the end of the third quarter of fiscal 2021
23,378,449 $9.10 4.3$171,868 
Vested and exercisable at the end of the third quarter of fiscal 2021
20,177,814 $9.28 3.9$144,373 
 
The aggregate intrinsic value of options vested and exercisable at the end of the third quarter of fiscal 2021 is calculated based on the difference between the exercise price and the closing price of $16.10 of our common stock on the last day of the third quarter of fiscal 2021.
The weighted-average grant date fair value of options assumed was $14.16 per share during the third quarter and first three quarters of fiscal 2021.
Stock-based compensation expense recognized related to stock options was $2.6 million and $1.6 million during the third quarter of fiscal 2020 and 2021, and $12.6 million and $5.7 million during the first three quarters of fiscal 2020 and 2021.
At the end of the third quarter of fiscal 2021, total unrecognized employee compensation cost related to outstanding options was $21.6 million, which is expected to be recognized over a weighted-average period of 2.3 years.
RSUs and PRSUs
A summary of the RSU and PRSU activity under our equity incentive plans and related information is as follows:
 Number of
RSUs and PRSUs Outstanding
Weighted-
Average
Grant Date
Fair Value
Aggregate
Intrinsic
Value (in thousands)
Unvested balance at the end of fiscal 202025,434,597 $18.72 $452,736 
Granted16,650,722 11.73 
Assumed in an acquisition2,016,061 15.79 
Vested(8,445,201)16.95 
Forfeited(2,308,191)16.94 
Unvested balance at the end of the third quarter of fiscal 2021
33,347,988 $15.62 $536,903 

During the third quarter and first three quarters of fiscal 2021, we issued 179,616 and 1,631,512 shares of performance RSUs (PRSUs), at a target percentage of 100%, with both performance and service vesting conditions payable in common stock, from 0% to 125% of the target number granted, contingent upon the degree to which the performance condition is met. Any portion of shares that are not earned will be canceled.
Stock-based compensation expense recognized related to RSUs and PRSUs was $41.0 million and $50.4 million during the third quarter of fiscal 2020 and 2021, and $118.7 million and $147.4 million during the first three quarters of fiscal 2020 and 2021. At the end of the third quarter of fiscal 2021, total unrecognized employee compensation cost related to unvested RSUs was $476.6 million, which is expected to be recognized over a weighted-average period of 2.8 years.
Restricted Stock
A summary of the restricted stock activity under our 2015 Plan and related information is as follows:
 Number of
Restricted Stock Outstanding
Weighted-
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(1,031,540)19.60 
Forfeited/canceled(316,965)20.38 
Unvested balance at the end of the third quarter of fiscal 2021
778,701 $19.23 $12,537 

All unvested shares of restricted stock are subject to cancellation to the extent vesting conditions are not met. Stock-based compensation expense recognized related to restricted stock was $4.4 million and $0.8 million during the third quarter of fiscal 2020 and 2021, and $19.2 million and $7.9 million during the first three quarters of fiscal 2020 and 2021. At the end of the third quarter of fiscal 2021, total unrecognized employee compensation cost related to unvested restricted stock was $4.4 million, which is expected to be recognized over a weighted-average period of 1.2 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):
 
 
Third Quarter of Fiscal
First Three Quarters of Fiscal
 2020202120202021
Cost of revenue—product$912 $1,027 $2,843 $3,013 
Cost of revenue—subscription services3,517 3,883 11,101 10,961 
Research and development
27,827 29,220 85,180 87,770 
Sales and marketing16,802 14,898 51,171 48,018 
General and administrative5,171 10,581 24,495 29,993 
Total stock-based compensation expense$54,229 $59,609 $174,790 $179,755 
The tax benefit related to stock-based compensation expense for all periods presented was not material.
v3.20.2
Net Loss per Share Attributable to Common Stockholders
9 Months Ended
Nov. 01, 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 and PRSUs, cancelable 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):
 
Third Quarter of Fiscal
First Three Quarters of Fiscal
 2020202120202021
Net loss$(29,982)$(74,222)$(196,336)$(229,783)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted255,047 269,144 250,618 265,626 
Net loss per share attributable to common stockholders, basic and diluted$(0.12)$(0.28)$(0.78)$(0.87)
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):
 
 
Third Quarter of Fiscal
First Three Quarters of Fiscal
 2020202120202021
Stock options to purchase common stock30,769 22,687 32,150 23,884 
Unvested RSUs and PRSUs24,251 32,802 24,544 31,743 
Restricted stock subject to cancellation2,732 964 2,762 1,301 
Shares related to convertible senior notes21,884 21,884 21,884 21,884 
Shares issuable pursuant to the ESPP571 1,080 571 1,080 
Total80,207 79,417 81,911 79,892 
v3.20.2
Other Income (Expense), Net
9 Months Ended
Nov. 01, 2020
Other Income and Expenses [Abstract]  
Other Income (Expense), Net Other Income (Expense), Net
Other income (expense), net consists of the following (in thousands):
Third Quarter of Fiscal
First Three Quarters of Fiscal
2020202120202021
Interest income(1)
$6,770 $3,728 $20,376 $14,383 
Interest expense(2)
(7,077)(7,989)(20,725)(22,573)
Foreign currency transactions gains (losses)97 (699)(2,329)(277)
Other income219 73 219 1,767 
Total other income (expense), net$$(4,887)$(2,459)$(6,700)
____________________________________
(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 our debt and the contractual interest expense related to our debt.
v3.20.2
Income Taxes
9 Months Ended
Nov. 01, 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 third 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.
v3.20.2
Segment Information
9 Months Ended
Nov. 01, 2020
Segment Reporting [Abstract]  
Segment Information Segment InformationOur 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):
 
Third Quarter of Fiscal
First Three Quarters of Fiscal
 2020202120202021
United States$312,010 $302,091 $835,545 $847,916 
Rest of the world116,399 108,528 315,891 333,545 
Total revenue$428,409 $410,619 $1,151,436 $1,181,461 

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
Third Quarter of Fiscal 2021
United States$113,942 $146,945 
Rest of the world8,798 11,255 
Total long-lived assets$122,740 $158,200 
v3.20.2
Basis of Presentation and Summary of Significant Accounting Policies - (Policies)
9 Months Ended
Nov. 01, 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 will be January 31, 2021. The third quarter of fiscal 2020 and 2021 ended on October 31, 2019 and November 1, 2020. Unless otherwise stated, all dates refer to the our 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 and assumptions due to risks and uncertainties, including uncertainty in the current economic environment from the ongoing COVID-19 pandemic. 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 fair value of equity assumed, assets acquired and liabilities assumed for business combinations. 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.
In accordance with our 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.
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 with unrealized loss positions as to whether the declines in fair value were due to credit losses, and record the portion of impairment relating to the credit losses through allowance for credit losses limited to the amount that fair value was less than the amortized cost basis. Realized gains and losses from the sale of marketable securities are determined based on the specific identification method. 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 account for the lease and non-lease components of operating lease contract consideration 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 primarily from two sources: (1) product revenue which includes hardware and embedded software and (2) subscription services revenue which includes Evergreen Storage subscriptions, and our unified subscription that includes Pure as-a-Service 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 provides our customers with a new controller based upon certain terms. 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.
Recent accounting pronouncements not yet adopted
Recent Accounting Pronouncement Not Yet Adopted
In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share (EPS) calculations as a result of these changes. The standard will be effective for us beginning February 7, 2022 and can be applied on either a fully retrospective or modified retrospective basis. Early adoption is permitted for fiscal years beginning after December 15, 2020. We are currently evaluating the impact of this standard on our condensed consolidated financial statements.
Fair Value Measurements
Fair Value Measurements
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.