PURE STORAGE, INC., 10-Q filed on 9/5/2017
Quarterly Report
Document and Entity Information
6 Months Ended
Jul. 31, 2017
Aug. 25, 2017
Class A
Aug. 25, 2017
Class B
Document Type
10-Q 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Jul. 31, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
Q2 
 
 
Trading Symbol
PSTG 
 
 
Entity Registrant Name
Pure Storage, Inc. 
 
 
Entity Central Index Key
0001474432 
 
 
Current Fiscal Year End Date
--01-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding (in shares)
 
97,037,611 
114,445,493 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jul. 31, 2017
Jan. 31, 2017
Current assets:
 
 
Cash and cash equivalents
$ 171,894 
$ 183,675 
Marketable securities
351,123 
362,986 
Accounts receivable, net of allowance of $2,000 and $2,020 as of January 31, 2017 and July 31, 2017
168,404 
168,978 
Inventory
33,660 
23,498 
Deferred commissions, current
19,700 
15,787 
Prepaid expenses and other current assets
24,494 
25,157 
Total current assets
769,275 
780,081 
Property and equipment, net
81,850 
81,695 
Intangible assets, net
5,808 
6,560 
Deferred income taxes, non-current
877 
844 
Other assets, non-current
32,322 
30,565 
Total assets
890,132 
899,745 
Current liabilities:
 
 
Accounts payable
52,092 
52,719 
Accrued compensation and benefits
42,537 
39,252 
Accrued expenses and other liabilities
18,309 
21,697 
Deferred revenue, current
169,638 
158,095 
Liability related to early exercised stock options
816 
1,362 
Total current liabilities
283,392 
273,125 
Deferred revenue, non-current
157,961 
145,031 
Other liabilities, non-current
3,373 
3,159 
Total liabilities
444,726 
421,315 
Commitments and contingencies (Note 5)
   
   
Stockholders’ equity:
 
 
Preferred stock, par value of $0.0001 per share— 20,000 shares authorized as of January 31, 2017 and July 31, 2017; no shares issued and outstanding as of January 31, 2017 and July 31, 2017
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 as of January 31, 2017 and July 31, 2017; 204,364 (Class A 87,027, Class B 117,337) and 210,975 (Class A 96,478, Class B 114,497) shares issued and outstanding as of January 31, 2017 and July 31, 2017
20 
20 
Additional paid-in capital
1,372,221 
1,281,452 
Accumulated other comprehensive loss
(280)
(562)
Accumulated deficit
(926,555)
(802,480)
Total stockholders’ equity
445,406 
478,430 
Total liabilities and stockholders’ equity
$ 890,132 
$ 899,745 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jul. 31, 2017
Jan. 31, 2017
Accounts receivable, allowance
$ 2,020 
$ 2,000 
Preferred stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Preferred stock, shares authorized (in shares)
20,000,000 
20,000,000 
Preferred stock, shares issued (in shares)
Preferred stock, shares outstanding (in shares)
Common stock, par value per share (in dollars per share)
$ 0.0001 
$ 0.0001 
Common stock, shares authorized (in shares)
2,250,000,000 
2,250,000,000 
Common stock, shares issued (in shares)
210,975,000 
204,364,000 
Common stock, shares outstanding (in shares)
210,975,000 
204,364,000 
Class A
 
 
Common stock, par value per share (in dollars per share)
$ 0.0001 
$ 0.0001 
Common stock, shares authorized (in shares)
2,000,000,000 
2,000,000,000 
Common stock, shares issued (in shares)
96,478,000 
87,027,000 
Common stock, shares outstanding (in shares)
96,478,332 
87,027,000 
Class B
 
 
Common stock, par value per share (in dollars per share)
$ 0.0001 
$ 0.0001 
Common stock, shares authorized (in shares)
250,000,000 
250,000,000 
Common stock, shares issued (in shares)
114,497,355 
117,337,000 
Common stock, shares outstanding (in shares)
114,497,355 
117,337,000 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 31, 2017
Jul. 31, 2016
Jul. 31, 2017
Jul. 31, 2016
Revenue:
 
 
 
 
Product
$ 175,013 
$ 130,920 
$ 313,438 
$ 242,658 
Support
49,448 
32,294 
93,654 
60,503 
Total revenue
224,461 
163,214 
407,092 
303,161 
Cost of revenue:
 
 
 
 
Product
57,252 
42,847 
103,897 
76,893 
Support
19,199 
14,000 
36,102 
26,934 
Total cost of revenue
76,451 
56,847 
139,999 
103,827 
Gross profit
148,010 
106,367 
267,093 
199,334 
Operating expenses:
 
 
 
 
Research and development
69,361 
58,635 
134,789 
111,573 
Sales and marketing
120,633 
87,583 
217,597 
170,681 
General and administrative
22,162 
19,630 
42,258 
41,211 
Total operating expenses
212,156 
165,848 
394,644 
323,465 
Loss from operations
(64,146)
(59,481)
(127,551)
(124,131)
Other income, net
3,266 
37 
5,261 
1,319 
Loss before provision for income taxes
(60,880)
(59,444)
(122,290)
(122,812)
Provision for income taxes
821 
106 
1,785 
526 
Net loss
$ (61,701)
$ (59,550)
$ (124,075)
$ (123,338)
Net loss per share attributable to common stockholders, basic and diluted (in dollars per share)
$ (0.29)
$ (0.31)
$ (0.60)
$ (0.65)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted (in shares)
209,193 
192,730 
207,515 
191,026 
Condensed Consolidated Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 31, 2017
Jul. 31, 2016
Jul. 31, 2017
Jul. 31, 2016
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net loss
$ (61,701)
$ (59,550)
$ (124,075)
$ (123,338)
Other comprehensive income:
 
 
 
 
Change in unrealized net gain on available-for-sale securities
165 
45 
282 
852 
Comprehensive loss
$ (61,536)
$ (59,505)
$ (123,793)
$ (122,486)
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jul. 31, 2017
Jul. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
Net loss
$ (124,075)
$ (123,338)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
Depreciation and amortization
30,000 
22,336 
Stock-based compensation expense
69,057 
50,894 
Other
797 
494 
Changes in operating assets and liabilities:
 
 
Accounts receivable, net
25 
6,589 
Inventory
(10,487)
(2,392)
Deferred commissions
(4,607)
1,887 
Prepaid expenses and other current assets
(186)
(809)
Accounts payable
201 
(10,007)
Accrued compensation and other liabilities
310 
8,687 
Deferred revenue
24,473 
41,102 
Net cash used in operating activities
(14,492)
(4,557)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
Purchases of property and equipment
(30,100)
(46,118)
Purchase of intangible assets
(1,000)
Purchases of marketable securities
(95,358)
(427,968)
Sales of marketable securities
33,529 
59,071 
Maturities of marketable securities
73,681 
5,800 
Net increase in restricted cash
(5,600)
Net cash used in investing activities
(18,248)
(415,815)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
Net proceeds from exercise of stock options
6,793 
6,369 
Proceeds from issuance of common stock under employee stock purchase plan
14,166 
15,079 
Net cash provided by financing activities
20,959 
21,448 
Net decrease in cash and cash equivalents
(11,781)
(398,924)
Cash and cash equivalents, beginning of period
183,675 
604,742 
Cash and cash equivalents, end of period
171,894 
205,818 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
Cash paid for income taxes
1,661 
1,827 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION
 
 
Property and equipment purchased but not yet paid
6,578 
7,691 
Vesting of early exercised stock options
$ 546 
$ 486 
Business Overview
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 building a data platform that transforms business through a dramatic increase in performance and reduction in complexity and costs. We are headquartered in Mountain View, California and have wholly owned subsidiaries throughout the world.
Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation
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 the year ended January 31, 2017.
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 2018 or any future period.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ from these estimates. Such estimates include, but are not limited to, the determination of best estimate of selling price included in multiple-element revenue arrangements, sales commissions, useful lives of intangible assets and property and equipment, fair values of stock-based awards, provision for income taxes, including related reserves, and contingent liabilities, among others. 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.
Restricted Cash
Restricted cash is comprised of cash collateral for a vendor credit card program and letters of credit related to our facility leases. As of both January 31, 2017 and July 31, 2017, we had restricted cash of $12.7 million, which was included in other assets, non-current, in the condensed consolidated balance sheets.
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 other comprehensive income (loss), which is reflected as a component of stockholders’ equity. We evaluate our securities to assess whether those with unrealized loss positions are other than temporarily impaired. We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. Realized gains and losses from the sale of marketable securities and declines in value deemed to be other than temporary are determined on the specific identification method. To date, there have been no declines in value deemed to be other than temporary in any of our securities. Realized gains and losses are reported in other income, net, in the condensed consolidated statements of operations.
Deferred Commissions
Deferred commissions consist of direct and incremental costs paid to our sales force related to customer contracts. The deferred commission amounts are recoverable through the revenue streams that will be recognized under the related customer contracts. Direct sales commissions are deferred when earned and amortized over the same period that revenue is recognized from the related customer contract. Amortization of deferred commissions is included in sales and marketing expense in the condensed consolidated statements of operations.
As of January 31, 2017 and July 31, 2017, we recorded deferred commissions, current, of $15.8 million and $19.7 million, and deferred commissions, non-current, of $14.9 million and $15.6 million, in other assets, non-current, in the condensed consolidated balance sheets. We recognized sales commission expenses of $19.6 million and $25.5 million during the three months ended July 31, 2016 and 2017, and $37.2 million and $46.0 million during the six months July 31, 2016 and 2017, respectively.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), requiring an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 will supersede nearly all existing revenue recognition guidance under U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers, deferring the effective date for ASU 2014-09 by one year. The new standard will be effective for us beginning on February 1, 2018 which is the mandatory adoption date and we do not plan to early adopt. This standard may be adopted using either the full or modified retrospective methods. We currently anticipate adopting the standard retrospectively to all prior periods presented. We are evaluating the impact of the new standard on our accounting policies, processes, and system requirements, and have assigned internal and external resources to assist in our evaluation and system implementation. We have made and will continue to make investments in systems to enable timely and accurate reporting under the new standard. We are also evaluating the potential impact that the implementation of this standard will have on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize all leases with terms in excess of one year on their balance sheet as a right-of-use asset and a lease liability at the commencement date. The new standard also simplifies the accounting for sale and leaseback transactions. The amendments in this update will be effective for us beginning on February 1, 2019 and must be adopted using a modified retrospective method for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating adoption methods and the impact of this standard on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities to require that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statements of operations. The amendments in this update will be effective for us beginning on February 1, 2020 with early adoption permitted on or after February 1, 2019. We are currently evaluating the impact of this standard on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for us beginning on February 1, 2018 and will be applied on a retrospective basis. Early adoption is permitted. We do not expect the adoption of this standard to have any material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU No 2017-09, Compensation—Stock Compensation (Topic 718) — Scope of Modification Accounting, to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new standard, modification is required only if the fair value, the vesting conditions, or the classification of an award as equity or liability changes as a result of the change in terms or conditions. ASU 2017-09 will be effective for us beginning February 1, 2018 and will be applied prospectively. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.
Financial Instruments
Financial Instruments
Financial Instruments  
Fair Value Measurements
We measure our cash equivalents, marketable securities and restricted cash at fair value on a recurring basis. We define fair value as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level I—Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;
Level II—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 III—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on our own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.
We classify our cash equivalents, marketable securities and restricted cash within Level 1 or Level 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded. Our fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of our marketable securities were derived from non-binding market consensus prices that are corroborated by observable market data or quoted market prices for similar instruments.
Cash Equivalents, Marketable Securities and Restricted Cash
The following tables summarize our cash equivalents, marketable securities and restricted cash by significant investment categories as of January 31, 2017 and July 31, 2017 (in thousands):
 
 
As of January 31, 2017
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Cash Equivalents
 
Marketable Securities
 
Restricted Cash
Level 1
 

 
 

 
 

 
 

 
 

 
 
 
 

Money market accounts
$

 
$

 
$

 
$
12,734

 
$

 
$

 
$
12,734

Level 2
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government treasury notes
148,298

 
22

 
(289
)
 
148,031

 
13,226

 
134,805

 

U.S. government agencies
40,398

 
2

 
(159
)
 
40,241

 

 
40,241

 

Corporate debt securities
185,701

 
242

 
(379
)
 
185,564

 

 
185,564

 

Foreign government bonds
2,377

 
2

 
(3
)
 
2,376

 

 
2,376

 

Total
$
376,774

 
$
268

 
$
(830
)
 
$
388,946

 
$
13,226

 
$
362,986

 
$
12,734


 
As of July 31, 2017
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Cash Equivalents
 
Marketable
Securities
 
Restricted Cash
Level 1
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market accounts
$

 
$

 
$

 
$
12,734

 
$

 
$

 
$
12,734

Level 2
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government treasury notes
140,495

 
15

 
(317
)
 
140,193

 
18,390

 
121,803

 

U.S. government agencies
44,861

 
3

 
(139
)
 
44,725

 

 
44,725

 

Corporate debt securities
182,057

 
365

 
(205
)
 
182,217

 

 
182,217

 

Foreign government bonds
2,380

 

 
(2
)
 
2,378

 

 
2,378

 

Total
$
369,793

 
$
383

 
$
(663
)
 
$
382,247

 
$
18,390

 
$
351,123

 
$
12,734


 
The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):
 
 
As of July 31, 2017
 
Amortized Cost
 
Fair Value
Due within one year
$
150,456

 
$
150,372

Due in one to five years
200,946

 
200,751

Total
$
351,402

 
$
351,123


 
Based on our evaluation of available evidence, we concluded that the gross unrealized losses on our marketable securities as of July 31, 2017 were temporary in nature. The following table presents gross unrealized losses and fair values for those investments that were in a continuous unrealized loss as of July 31, 2017, aggregated by investment category (in thousands).
 
 
Less than 12 months
 
Greater than 12 months
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
U.S. government treasury notes
$
121,518

 
$
(299
)
 
$
1,986

 
$
(18
)
 
$
123,504

 
$
(317
)
U.S. government agencies
35,916

 
(112
)
 
4,471

 
(27
)
 
40,387

 
(139
)
Corporate debt securities
62,323

 
(192
)
 
4,271

 
(13
)
 
66,594

 
(205
)
Foreign government bonds
878

 
(2
)
 

 

 
878

 
(2
)
Total
$
220,635

 
$
(605
)
 
$
10,728

 
$
(58
)
 
$
231,363

 
$
(663
)

 
Gross realized gains or losses on sale of marketable securities for the three and six months ended July 31, 2016 were $104,000 and $110,000; and were not significant for three and six months ended July 31, 2017.
Balance Sheet Components
Balance Sheet Components
Balance Sheet Components
Inventory
Inventory consists of the following (in thousands):
 
As of
January 31, 2017
 
As of
July 31, 2017
Raw materials
$
3,003

 
$
2,966

Finished goods
20,495

 
30,694

Inventory
$
23,498

 
$
33,660


Property and Equipment, Net
Property and equipment, net, consists of the following (in thousands):
 
 
As of
January 31, 2017
 
As of
July 31, 2017
Test equipment
$
105,955

 
$
125,348

Computer equipment and software
54,521

 
60,838

Furniture and fixtures
4,494

 
5,045

Leasehold improvements
10,332

 
13,092

Total property and equipment
175,302

 
204,323

Less: accumulated depreciation and amortization
(93,607
)
 
(122,473
)
Property and equipment, net
$
81,695

 
$
81,850


 
Depreciation and amortization expense was $11.6 million and $14.8 million for the three months ended July 31, 2016 and 2017, and $21.7 million and $29.2 million for the six months ended July 31, 2016 and 2017, respectively.
Intangible Assets, Net
Intangible assets, net, consist of the following (in thousands):
 
 
As of
January 31, 2017
 
As of
July 31, 2017
Technology patents
$
10,125

 
$
10,125

Accumulated amortization
(3,565
)
 
(4,317
)
Intangible assets, net
$
6,560

 
$
5,808


 
Intangible assets amortization expense was $342,000 and $376,000 for the three months ended July 31, 2016 and 2017, and $668,000 and $752,000 for the six months ended July 31, 2016 and 2017. The weighted-average remaining useful life of technology patents is 3.9 years. Due to the defensive nature of these patents, the amortization is included in general and administrative expenses in the condensed consolidated statements of operations.
As of July 31, 2017, expected amortization expense for intangible assets for each of the next five years is as follows (in thousands):
 
Years Ending January 31,
Estimated 
Future
Amortization
Expense
Remainder of 2018
$
752

2019
1,504

2020
1,504

2021
1,504

2022
544

Total
$
5,808


Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
 
 
As of January 31, 2017
 
As of July 31, 2017
Sales and use tax payable
$
540

 
$
298

Accrued professional fees
1,765

 
1,325

Accrued marketing
6,718

 
6,164

Accrued travel and entertainment expenses
2,235

 
4,014

Income tax payable
1,135

 
1,317

Other accrued liabilities
9,304

 
5,191

Total accrued expenses and other liabilities
$
21,697

 
$
18,309

Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies

Operating Leases
 
During the six months ended July 31, 2017, we extended the lease term of an existing office facility with total additional lease obligations of approximately $2.0 million with the lease expiring through March 2019.
Letters of Credit
As of January 31, 2017 and July 31, 2017, we had outstanding letters of credit in the aggregate amount of $7.7 million, in connection with our facility leases. The letters of credit are collateralized by restricted cash in the same amount and mature at various dates through June 2024.
Legal Matters
On September 1, 2016, a purported securities class action entitled Ramsay v. Pure Storage, Inc., et al. was filed in the Superior Court of the State of California (San Mateo County) against us and certain of our officers, directors, investors and underwriters for our initial public offering (IPO), asserting claims under sections 11, 12 and 15 of the Securities Act on behalf of a purported class consisting of purchasers of our common stock pursuant or traceable to our initial public offering, and seeking unspecified compensatory damages and other relief. Substantially identical lawsuits were subsequently filed in the same court, bringing the same claims against the same defendants, captioned Peter Galanis v. Pure Storage, Inc., et al. (filed September 14, 2016), Curtis Wilson v. Pure Storage, Inc., et al. (filed September 15, 2016), Loren Moe v. Pure Storage, Inc., et al. (filed September 23, 2016), and Mason Delahooke and Mahsa Shirazikia v. Pure Storage, Inc., et al. (filed October 5, 2016). On October 27, 2016, the aforementioned actions were consolidated under the caption In re Pure Storage, Inc. Shareholder Litigation. On December 13, 2016, the plaintiffs filed a consolidated complaint. On January 26, 2017, the defendants filed a demurrer (motion to dismiss) to the consolidated complaint on the grounds that the plaintiffs failed to state a claim under the Securities Act. On April 4, 2017, the court sustained the demurrer as to all claims with leave to amend. On May 15, 2017, the plaintiffs filed an amended complaint, again asserting claims under sections 11, 12 and 15 of the Securities Act against us and certain of our officers, directors and underwriters for our IPO. On May 26, 2017 the defendants filed a demurrer (motion to dismiss) to the amended complaint on the grounds that the plaintiffs failed to state a claim under the Securities Act. The Court heard arguments on the second demurrer on July 18, 2017 and on August 31, 2017 the Court sustained defendant's demurrer again as to all claims with leave to amend. We believe there is no merit to the allegations and intend to defend ourselves vigorously.
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 may 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 consolidated balance sheet as of July 31, 2017.
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 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.
Stockholders' Equity
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. As of July 31, 2017, 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 and Class B common stock. As of July 31, 2017, we had 2,000,000,000 shares of Class A common stock authorized with a par value of $0.0001 per share and 250,000,000 shares of Class B common stock authorized with a par value of $0.0001 per share. As of July 31, 201796,478,332 shares of Class A common stock were issued and outstanding and 114,497,355 shares of Class B common stock were issued and outstanding.
Equity Incentive Plans
Equity Incentive Plans
Equity Incentive Plans
Equity Incentive Plans
We maintain two equity incentive plans: the 2009 Equity Incentive Plan (our 2009 Plan) and the 2015 Equity Incentive Plan (our 2015 Plan). In August 2015, our board of directors adopted, and in September 2015 our stockholders approved, the 2015 Plan, which became effective in connection with our IPO and serves as the successor to our 2009 Plan. Our 2015 Plan provides for grants of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of stock awards to our employees, directors and consultants. We ceased grants of new awards under our 2009 Plan after the effective date of our 2015 Plan, and no new grants will be made from our 2009 Plan. Outstanding awards granted under our 2009 Plan will remain subject to the terms of our 2009 Plan and applicable award agreements, until such outstanding awards that are stock options are exercised, terminated or expired by their terms.
We initially reserved 27,000,000 shares of our Class A common stock for issuance under our 2015 Plan. The number of shares reserved for issuance under our 2015 Plan increases automatically on the first day of February of each year through 2025, in an amount equal to 5% of the total number of shares of our capital stock outstanding as of the immediately preceding January 31.
The exercise price of stock options will generally not be less than 100% of the fair market value of our common stock on the date of grant, as determined by our board of directors.  Our equity awards generally vest over a two to four year period and expire no later than ten years from the date of grant.  
2015 Employee Stock Purchase Plan
In August 2015, our board of directors adopted and our stockholders approved, the 2015 Employee Stock Purchase Plan (2015 ESPP), which became effective in connection with our IPO. A total of 3,500,000 shares of Class A common stock was initially reserved for issuance under the 2015 ESPP. The number of shares reserved for issuance under our 2015 ESPP increases automatically on the first day of February of each year through 2025, in an amount equal to the lesser of (i) 1% of the total number of shares of our capital stock outstanding as of the immediately preceding January 31, and (ii) 3,500,000 shares of Class A common stock.
The 2015 ESPP allows eligible employees to purchase shares of our Class A common stock at a discount through payroll deductions (or other payroll contributions) of up to 30% of their eligible compensation, subject to a cap of 3,000 shares on any purchase date or $25,000 in any calendar year (as determined under applicable tax rules). The 2015 ESPP provides for 24 month offering periods beginning March 16th and September 16th of each year, and each offering period consists of four six-month purchase periods, subject to a reset provision. 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). On each purchase date, eligible employees will purchase our Class A common stock at a price per share equal to 85% of the lesser of the fair market value of our Class A common stock (1) on the first trading day of the applicable offering period or (2) the purchase date. Our closing stock price on the new offering date of March 16, 2017 was lower than the closing stock prices for both the offerings that started on March 16, 2016 and September 16, 2016, which triggered an ESPP reset for those offerings. The ESPP reset resulted in a modification charge of approximately $9.0 million, which is being recognized over the new 24-month offering period ending on March 15, 2019. In addition, the original remaining unamortized stock-based compensation expense for each of the offerings is being recognized over the same 24-month offering period ending on March 15, 2019.
We recognized stock-based compensation related to our 2015 ESPP of $4.3 million and $3.8 million during the three months ended July 31, 2016 and 2017 and $8.6 million and $7.9 million during the six months ended July 31, 2016 and 2017. As of July 31, 2017, there was $24.1 million of unrecognized stock-based compensation expense related to our 2015 ESPP which is expected to be recognized over a weighted-average period of approximately 1.6 years.
Stock Options
A summary of 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 as of January 31, 2017
56,840,189

 
$
7.15

 
7.0
 
$
315,502

Options granted

 

 
 
 
 

Options exercised
(2,769,381
)
 
2.53

 
 
 
 

Options forfeited/cancelled
(1,266,826
)
 
14.04

 
 
 
 

Balance as of July 31, 2017
52,803,982

 
$
7.23

 
6.5
 
$
315,252

Vested and exercisable as of July 31, 2017
31,539,259

 
$
4.67

 
5.8
 
$
248,932


 
 
The aggregate intrinsic value of options vested and exercisable as of July 31, 2017 is calculated based on the difference between the exercise price and the closing price of $12.07 of our Class A common stock on July 31, 2017.
As of July 31, 2017, total unrecognized employee compensation cost related to outstanding options was $98.4 million, which is expected to be recognized over a weighted-average period of approximately 2.5 years.

Restricted Stock Units
A summary of the restricted stock unit activity under our 2015 Plan and related information is as follows:
 
 
Number of Restricted Stock Units Outstanding
 
Weighted-
Average
Grant Date
Fair Value
 
Aggregate
Intrinsic
Value (in thousands)
Unvested Balance as of January 31, 2017
8,783,024

 
$
13.06

 
$
99,863

Granted
9,807,355

 
10.59

 

Vested
(2,221,800
)
 
12.46

 

Forfeited
(908,755
)
 
11.50

 

Unvested Balance as of July 31, 2017
15,459,824

 
$
11.67

 
$
186,600


 
As of July 31, 2017, total unrecognized employee compensation cost related to unvested restricted stock units was $161.5 million, which is expected to be recognized over a weighted-average period of approximately 2.6 years.

During the six months ended July 31, 2017, we granted 750,000 performance stock units (net of 77,000 canceled units during the three months ended July 31, 2017) with both performance and service vesting conditions payable in common shares from 0% to 150% of the target number granted, contingent upon the degree to which the performance condition is met. Management determined it is probable that the performance condition will be satisfied and accordingly, we began recognizing stock-based compensation expense during the three months ended April 30, 2017. Stock-based compensation expense for these units was $1.2 million and $1.6 million for the three and six months ended July 31, 2017 recognized on an accelerated attribution method.
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):
 
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
 
2016
 
2017
 
2016
 
2017
Cost of revenue—product
$
181

 
$
358

 
$
287

 
$
755

Cost of revenue—support
1,712

 
2,245

 
2,804

 
4,019

Research and development
13,976

 
17,971

 
25,634

 
33,559

Sales and marketing
8,732

 
11,439

 
16,251

 
22,065

General and administrative
3,295

 
4,825

 
5,918

 
8,659

Total stock-based compensation expense
$
27,896

 
$
36,838

 
$
50,894

 
$
69,057



The tax benefit related to stock-based compensation expense for all periods presented was not material.
Net Loss per Share Attributable to Common Stockholders
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 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 outstanding for the period. For purposes of this calculation, stock options, unvested restricted stock awards, repurchasable shares from early exercised stock options, and shares subject to ESPP withholding are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive.
The rights, including the liquidation and dividend rights, of the holders of our Class A and Class B common stock are identical, except with respect to voting. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis. We did not present dilutive net loss per share on an if-converted basis because the impact was not 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):
 
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
 
2016
 
2017
 
2016
 
2017
Net loss
$
(59,550
)
 
$
(61,701
)
 
$
(123,338
)
 
$
(124,075
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
192,730

 
209,193

 
191,026

 
207,515

Net loss per share attributable to common stockholders, basic and diluted
$
(0.31
)
 
$
(0.29
)
 
$
(0.65
)
 
$
(0.60
)


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):
 
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
 
2016
 
2017
 
2016
 
2017
Stock options to purchase common stock
65,567

 
53,878

 
66,974

 
54,864

Restricted stock units
4,682

 
15,710

 
3,046

 
13,759

Early exercised stock options
2,446

 
279

 
2,555

 
333

Employee stock purchase plan
953

 
898

 
953

 
898

Total
73,648

 
70,765

 
73,528

 
69,854

Income Taxes
Income Taxes
Income Taxes
Our provision for income taxes was primarily due to taxes on international operations and state income taxes. The difference between the provision for income taxes that would be derived by applying the statutory rate to our loss before income taxes and the provision for income taxes recorded was primarily attributable to changes in our valuation allowance, non-deductible stock-based compensation expense and the tax rate differential between the U.S. and foreign countries.
As of July 31, 2017, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for the year ended January 31, 2017.
Segment Information
Segment Information
Segment Information
Our chief operating decision maker is a group which is comprised of our Chief Executive Officer, our Chief Financial Officer, and our President. This group 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.
The following table sets forth revenue by geographic area based on the billing address of our customers (in thousands):
 
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
 
2016
 
2017
 
2016
 
2017
United States
$
122,103

 
$
165,466

 
$
233,330

 
$
311,960

Rest of the world
41,111

 
58,995

 
69,831

 
95,132

Total revenue
$
163,214

 
$
224,461

 
$
303,161

 
$
407,092


 
Long-lived assets by geographic area are summarized as follows (in thousands):
 
 
As of
January 31, 2017
 
As of
July 31, 2017
United States
$
78,692

 
$
78,207

Rest of the world
3,003

 
3,643

Total long-lived assets
$
81,695

 
$
81,850

Subsequent Events
Subsequent Events
Subsequent Events

In August 2017, we entered into a seven-year term operating lease for approximately 45,831 square feet of office space in Mountain View, California with total rent obligation of $31.6 million. In connection with the lease, we have issued a letter of credit of $2.6 million.

On August 22, 2017, Scott Dietzen resigned from his position as chief executive officer and was appointed as the chairman of our board of directors. On August 22, 2017, our board of directors appointed Charles H. Giancarlo, as the new chief executive officer and a member on our board of directors, effective immediately.
Basis of Presentation and Summary of Significant Accounting Policies (Policies)
Principles of Consolidation
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 the year ended January 31, 2017.
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 2018 or any future period.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ from these estimates. Such estimates include, but are not limited to, the determination of best estimate of selling price included in multiple-element revenue arrangements, sales commissions, useful lives of intangible assets and property and equipment, fair values of stock-based awards, provision for income taxes, including related reserves, and contingent liabilities, among others. 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.
Restricted Cash
Restricted cash is comprised of cash collateral for a vendor credit card program and letters of credit related to our facility leases.
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 other comprehensive income (loss), which is reflected as a component of stockholders’ equity. We evaluate our securities to assess whether those with unrealized loss positions are other than temporarily impaired. We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. Realized gains and losses from the sale of marketable securities and declines in value deemed to be other than temporary are determined on the specific identification method. To date, there have been no declines in value deemed to be other than temporary in any of our securities. Realized gains and losses are reported in other income, net, in the condensed consolidated statements of operations.
Deferred Commissions
Deferred commissions consist of direct and incremental costs paid to our sales force related to customer contracts. The deferred commission amounts are recoverable through the revenue streams that will be recognized under the related customer contracts. Direct sales commissions are deferred when earned and amortized over the same period that revenue is recognized from the related customer contract. Amortization of deferred commissions is included in sales and marketing expense in the condensed consolidated statements of operations.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), requiring an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 will supersede nearly all existing revenue recognition guidance under U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers, deferring the effective date for ASU 2014-09 by one year. The new standard will be effective for us beginning on February 1, 2018 which is the mandatory adoption date and we do not plan to early adopt. This standard may be adopted using either the full or modified retrospective methods. We currently anticipate adopting the standard retrospectively to all prior periods presented. We are evaluating the impact of the new standard on our accounting policies, processes, and system requirements, and have assigned internal and external resources to assist in our evaluation and system implementation. We have made and will continue to make investments in systems to enable timely and accurate reporting under the new standard. We are also evaluating the potential impact that the implementation of this standard will have on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize all leases with terms in excess of one year on their balance sheet as a right-of-use asset and a lease liability at the commencement date. The new standard also simplifies the accounting for sale and leaseback transactions. The amendments in this update will be effective for us beginning on February 1, 2019 and must be adopted using a modified retrospective method for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating adoption methods and the impact of this standard on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities to require that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statements of operations. The amendments in this update will be effective for us beginning on February 1, 2020 with early adoption permitted on or after February 1, 2019. We are currently evaluating the impact of this standard on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for us beginning on February 1, 2018 and will be applied on a retrospective basis. Early adoption is permitted. We do not expect the adoption of this standard to have any material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU No 2017-09, Compensation—Stock Compensation (Topic 718) — Scope of Modification Accounting, to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new standard, modification is required only if the fair value, the vesting conditions, or the classification of an award as equity or liability changes as a result of the change in terms or conditions. ASU 2017-09 will be effective for us beginning February 1, 2018 and will be applied prospectively. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.
Fair Value Measurements
We measure our cash equivalents, marketable securities and restricted cash at fair value on a recurring basis. We define fair value as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level I—Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;
Level II—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 III—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on our own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.
We classify our cash equivalents, marketable securities and restricted cash within Level 1 or Level 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded. Our fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of our marketable securities were derived from non-binding market consensus prices that are corroborated by observable market data or quoted market prices for similar instruments.
Financial Instruments (Tables)
The following tables summarize our cash equivalents, marketable securities and restricted cash by significant investment categories as of January 31, 2017 and July 31, 2017 (in thousands):
 
 
As of January 31, 2017
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Cash Equivalents
 
Marketable Securities
 
Restricted Cash
Level 1
 

 
 

 
 

 
 

 
 

 
 
 
 

Money market accounts
$

 
$

 
$

 
$
12,734

 
$

 
$

 
$
12,734

Level 2
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government treasury notes
148,298

 
22

 
(289
)
 
148,031

 
13,226

 
134,805

 

U.S. government agencies
40,398

 
2

 
(159
)
 
40,241

 

 
40,241

 

Corporate debt securities
185,701

 
242

 
(379
)
 
185,564

 

 
185,564

 

Foreign government bonds
2,377

 
2

 
(3
)
 
2,376

 

 
2,376

 

Total
$
376,774

 
$
268

 
$
(830
)
 
$
388,946

 
$
13,226

 
$
362,986

 
$
12,734


 
As of July 31, 2017
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Cash Equivalents
 
Marketable
Securities
 
Restricted Cash
Level 1
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market accounts
$

 
$

 
$

 
$
12,734

 
$

 
$

 
$
12,734

Level 2
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government treasury notes
140,495

 
15

 
(317
)
 
140,193

 
18,390

 
121,803

 

U.S. government agencies
44,861

 
3

 
(139
)
 
44,725

 

 
44,725

 

Corporate debt securities
182,057

 
365

 
(205
)
 
182,217

 

 
182,217

 

Foreign government bonds
2,380

 

 
(2
)
 
2,378

 

 
2,378

 

Total
$
369,793

 
$
383

 
$
(663
)
 
$
382,247

 
$
18,390

 
$
351,123

 
$
12,734

The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):
 
 
As of July 31, 2017
 
Amortized Cost
 
Fair Value
Due within one year
$
150,456

 
$
150,372

Due in one to five years
200,946

 
200,751

Total
$
351,402

 
$
351,123

The following table presents gross unrealized losses and fair values for those investments that were in a continuous unrealized loss as of July 31, 2017, aggregated by investment category (in thousands).
 
 
Less than 12 months
 
Greater than 12 months
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
U.S. government treasury notes
$
121,518

 
$
(299
)
 
$
1,986

 
$
(18
)
 
$
123,504

 
$
(317
)
U.S. government agencies
35,916

 
(112
)
 
4,471

 
(27
)
 
40,387

 
(139
)
Corporate debt securities
62,323

 
(192
)
 
4,271

 
(13
)
 
66,594

 
(205
)
Foreign government bonds
878

 
(2
)
 

 

 
878

 
(2
)
Total
$
220,635

 
$
(605
)
 
$
10,728

 
$
(58
)
 
$
231,363

 
$
(663
)
Balance Sheet Components (Tables)
Inventory consists of the following (in thousands):
 
As of
January 31, 2017
 
As of
July 31, 2017
Raw materials
$
3,003

 
$
2,966

Finished goods
20,495

 
30,694

Inventory
$
23,498

 
$
33,660

Property and equipment, net, consists of the following (in thousands):
 
 
As of
January 31, 2017
 
As of
July 31, 2017
Test equipment
$
105,955

 
$
125,348

Computer equipment and software
54,521

 
60,838

Furniture and fixtures
4,494

 
5,045

Leasehold improvements
10,332

 
13,092

Total property and equipment
175,302

 
204,323

Less: accumulated depreciation and amortization
(93,607
)
 
(122,473
)
Property and equipment, net
$
81,695

 
$
81,850

Intangible assets, net, consist of the following (in thousands):
 
 
As of
January 31, 2017
 
As of
July 31, 2017
Technology patents
$
10,125

 
$
10,125

Accumulated amortization
(3,565
)
 
(4,317
)
Intangible assets, net
$
6,560

 
$
5,808

As of July 31, 2017, expected amortization expense for intangible assets for each of the next five years is as follows (in thousands):
 
Years Ending January 31,
Estimated 
Future
Amortization
Expense
Remainder of 2018
$
752

2019
1,504

2020
1,504

2021
1,504

2022
544

Total
$
5,808

Accrued expenses and other liabilities consist of the following (in thousands):
 
 
As of January 31, 2017
 
As of July 31, 2017
Sales and use tax payable
$
540

 
$
298

Accrued professional fees
1,765

 
1,325

Accrued marketing
6,718

 
6,164

Accrued travel and entertainment expenses
2,235

 
4,014

Income tax payable
1,135

 
1,317

Other accrued liabilities
9,304

 
5,191

Total accrued expenses and other liabilities
$
21,697

 
$
18,309

Equity Incentive Plans (Tables)
A summary of 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 as of January 31, 2017
56,840,189

 
$
7.15

 
7.0
 
$
315,502

Options granted

 

 
 
 
 

Options exercised
(2,769,381
)
 
2.53

 
 
 
 

Options forfeited/cancelled
(1,266,826
)
 
14.04

 
 
 
 

Balance as of July 31, 2017
52,803,982

 
$
7.23

 
6.5
 
$
315,252

Vested and exercisable as of July 31, 2017
31,539,259

 
$
4.67

 
5.8
 
$
248,932

A summary of the restricted stock unit activity under our 2015 Plan and related information is as follows:
 
 
Number of Restricted Stock Units Outstanding
 
Weighted-
Average
Grant Date
Fair Value
 
Aggregate
Intrinsic
Value (in thousands)
Unvested Balance as of January 31, 2017
8,783,024

 
$
13.06

 
$
99,863

Granted
9,807,355

 
10.59

 

Vested
(2,221,800
)
 
12.46

 

Forfeited
(908,755
)
 
11.50

 

Unvested Balance as of July 31, 2017
15,459,824

 
$
11.67

 
$
186,600

The following table summarizes the components of stock-based compensation expense recognized in the condensed consolidated statements of operations (in thousands):
 
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
 
2016
 
2017
 
2016
 
2017
Cost of revenue—product
$
181

 
$
358

 
$
287

 
$
755

Cost of revenue—support
1,712

 
2,245

 
2,804

 
4,019

Research and development
13,976

 
17,971

 
25,634

 
33,559

Sales and marketing
8,732

 
11,439

 
16,251

 
22,065

General and administrative
3,295

 
4,825

 
5,918

 
8,659

Total stock-based compensation expense
$
27,896

 
$
36,838

 
$
50,894

 
$
69,057

Net Loss per Share Attributable to Common Stockholders (Tables)
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):
 
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
 
2016
 
2017
 
2016
 
2017
Net loss
$
(59,550
)
 
$
(61,701
)
 
$
(123,338
)
 
$
(124,075
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
192,730

 
209,193

 
191,026

 
207,515

Net loss per share attributable to common stockholders, basic and diluted
$
(0.31
)
 
$
(0.29
)
 
$
(0.65
)
 
$
(0.60
)
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):
 
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
 
2016
 
2017
 
2016
 
2017
Stock options to purchase common stock
65,567

 
53,878

 
66,974

 
54,864

Restricted stock units
4,682

 
15,710

 
3,046

 
13,759

Early exercised stock options
2,446

 
279

 
2,555

 
333

Employee stock purchase plan
953

 
898

 
953

 
898

Total
73,648

 
70,765

 
73,528

 
69,854

Segment Information (Tables)
The following table sets forth revenue by geographic area based on the billing address of our customers (in thousands):
 
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
 
2016
 
2017
 
2016
 
2017
United States
$
122,103

 
$
165,466

 
$
233,330

 
$
311,960

Rest of the world
41,111

 
58,995

 
69,831

 
95,132

Total revenue
$
163,214

 
$
224,461

 
$
303,161

 
$
407,092

Long-lived assets by geographic area are summarized as follows (in thousands):
 
 
As of
January 31, 2017
 
As of
July 31, 2017
United States
$
78,692

 
$
78,207

Rest of the world
3,003

 
3,643

Total long-lived assets
$
81,695

 
$
81,850

Basis of Presentation and Summary of Significant Accounting Policies - Additional Information (Details) (USD $)
3 Months Ended 6 Months Ended
Jul. 31, 2017
Jul. 31, 2016
Jul. 31, 2017
Jul. 31, 2016
Jan. 31, 2017
Accounting Policies [Abstract]
 
 
 
 
 
Restricted cash
$ 12,700,000 
 
$ 12,700,000 
 
$ 12,734,000 
Deferred commissions, current
19,700,000 
 
19,700,000 
 
15,787,000 
Deferred income taxes, non-current
15,600,000 
 
15,600,000 
 
14,900,000 
Sales commission expenses
$ 25,500,000 
$ 19,600,000 
$ 46,000,000 
$ 37,200,000 
 
Financial Instruments - Summary of Cash Equivalents, Marketable Securities and Restricted Cash by Significant Investment Categories (Details) (USD $)
In Thousands, unless otherwise specified
Jul. 31, 2017
Jan. 31, 2017
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
$ 369,793 
$ 376,774 
Gross Unrealized Gains
383 
268 
Gross Unrealized Losses
(663)
(830)
Fair Value
382,247 
388,946 
Cash Equivalents
18,390 
13,226 
Marketable Securities
351,123 
362,986 
Restricted Cash
12,700 
12,734 
Money market accounts |
Level 1
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
12,734 
12,734 
Cash Equivalents
Marketable Securities
Restricted Cash
12,734 
12,734 
U.S. government treasury notes |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
140,495 
148,298 
Gross Unrealized Gains
15 
22 
Gross Unrealized Losses
(317)
(289)
Fair Value
140,193 
148,031 
Cash Equivalents
18,390 
13,226 
Marketable Securities
121,803 
134,805 
Restricted Cash
U.S. government agencies |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
44,861 
40,398 
Gross Unrealized Gains
Gross Unrealized Losses
(139)
(159)
Fair Value
44,725 
40,241 
Cash Equivalents
Marketable Securities
44,725 
40,241 
Restricted Cash
Corporate debt securities |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
182,057 
185,701 
Gross Unrealized Gains
365 
242 
Gross Unrealized Losses
(205)
(379)
Fair Value
182,217 
185,564 
Cash Equivalents
Marketable Securities
182,217 
185,564 
Restricted Cash
Foreign government bonds |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
2,380 
2,377 
Gross Unrealized Gains
Gross Unrealized Losses
(2)
(3)
Fair Value
2,378 
2,376 
Cash Equivalents
Marketable Securities
2,378 
2,376 
Restricted Cash
$ 0 
$ 0 
Financial Instruments - Schedule of Amortized Cost and Estimated Fair Value of Marketable Securities by Contractual Maturity (Details) (USD $)
In Thousands, unless otherwise specified
Jul. 31, 2017
Investments, Debt and Equity Securities [Abstract]
 
Due within one year, Amortized Cost
$ 150,456 
Due in one to five years, Amortized Cost
200,946 
Total, Amortized Cost
351,402 
Due within one year, Fair Value
150,372 
Due in one to five years, Fair Value
200,751 
Total, Fair Value
$ 351,123 
Financial Instruments - Schedule of Gross Unrealized Losses and Fair Values for Investments that were in Continuous Unrealized Loss Position for Less Than 12 Months, Aggregated by Investments Category (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 31, 2016
Jul. 31, 2016
Jul. 31, 2017
Fair Value
 
 
 
Less than 12 months
 
 
$ 220,635 
Greater than 12 months
 
 
10,728 
Total
 
 
231,363 
Unrealized Loss
 
 
 
Less than 12 months
 
 
(605)
Greater than 12 months
 
 
(58)
Total
 
 
(663)
Realized gain (loss)
104 
110 
 
U.S. government treasury notes
 
 
 
Fair Value
 
 
 
Less than 12 months
 
 
121,518 
Greater than 12 months
 
 
1,986 
Total
 
 
123,504 
Unrealized Loss
 
 
 
Less than 12 months
 
 
(299)
Greater than 12 months
 
 
(18)
Total
 
 
(317)
U.S. government agencies
 
 
 
Fair Value
 
 
 
Less than 12 months
 
 
35,916 
Greater than 12 months
 
 
4,471 
Total
 
 
40,387 
Unrealized Loss
 
 
 
Less than 12 months
 
 
(112)
Greater than 12 months
 
 
(27)
Total
 
 
(139)
Corporate debt securities
 
 
 
Fair Value
 
 
 
Less than 12 months
 
 
62,323 
Greater than 12 months
 
 
4,271 
Total
 
 
66,594 
Unrealized Loss
 
 
 
Less than 12 months
 
 
(192)
Greater than 12 months
 
 
(13)
Total
 
 
(205)
Foreign government bonds
 
 
 
Fair Value
 
 
 
Less than 12 months
 
 
878 
Greater than 12 months
 
 
Total
 
 
878 
Unrealized Loss
 
 
 
Less than 12 months
 
 
(2)
Greater than 12 months
 
 
Total
 
 
$ (2)
Balance Sheet Components - Schedule of Inventory (Details) (USD $)
In Thousands, unless otherwise specified
Jul. 31, 2017
Jan. 31, 2017
Balance Sheet Components Disclosure [Abstract]
 
 
Raw materials
$ 2,966 
$ 3,003 
Finished goods
30,694 
20,495 
Inventory
$ 33,660 
$ 23,498 
Balance Sheet Components - Schedule of Property and Equipment, Net (Details) (USD $)
In Thousands, unless otherwise specified
Jul. 31, 2017
Jan. 31, 2017
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
$ 204,323 
$ 175,302 
Less: accumulated depreciation and amortization
(122,473)
(93,607)
Property and equipment, net
81,850 
81,695 
Test equipment
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
125,348 
105,955 
Computer equipment and software
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
60,838 
54,521 
Furniture and fixtures
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
5,045 
4,494 
Leasehold improvements
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
$ 13,092 
$ 10,332 
Balance Sheet Components - Additional Information (Details) (USD $)
3 Months Ended 6 Months Ended
Jul. 31, 2017
Jul. 31, 2016
Jul. 31, 2017
Jul. 31, 2016
Balance Sheet Components Disclosure [Abstract]
 
 
 
 
Depreciation and amortization
$ 14,800,000 
$ 11,600,000 
$ 29,200,000 
$ 21,700,000 
Intangible assets amortization expense
$ 376,000 
$ 342,000 
$ 752,000 
$ 668,000