PURE STORAGE, INC., 10-Q filed on 12/8/2017
Quarterly Report
Document and Entity Information
9 Months Ended
Oct. 31, 2017
Nov. 30, 2017
Class A
Nov. 30, 2017
Class B
Document Type
10-Q 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Oct. 31, 2017 
 
 
Document Fiscal Year Focus
2018 
 
 
Document Fiscal Period Focus
Q3 
 
 
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)
 
112,788,614 
103,994,591 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2017
Jan. 31, 2017
Current assets:
 
 
Cash and cash equivalents
$ 182,039 
$ 183,675 
Marketable securities
369,337 
362,986 
Accounts receivable, net of allowance of $2,000 and $2,073 as of January 31, 2017 and October 31, 2017
202,006 
168,978 
Inventory
37,208 
23,498 
Deferred commissions, current
20,200 
15,787 
Prepaid expenses and other current assets
24,522 
25,157 
Total current assets
835,299 
780,081 
Property and equipment, net
84,264 
81,695 
Intangible assets, net
5,432 
6,560 
Deferred income taxes, non-current
965 
844 
Other assets, non-current
36,596 
30,565 
Total assets
962,556 
899,745 
Current liabilities:
 
 
Accounts payable
66,664 
52,719 
Accrued compensation and benefits
50,077 
39,252 
Accrued expenses and other liabilities
24,945 
21,697 
Deferred revenue, current
183,889 
158,095 
Liability related to early exercised stock options
568 
1,362 
Total current liabilities
326,143 
273,125 
Deferred revenue, non-current
173,641 
145,031 
Other liabilities, non-current
3,651 
3,159 
Total liabilities
503,435 
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 October 31, 2017; no shares issued and outstanding as of January 31, 2017 and October 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 October 31, 2017; 204,364 (Class A 87,027, Class B 117,337) and 216,016 (Class A 109,178, Class B 106,838) shares issued and outstanding as of January 31, 2017 and October 31, 2017
20 
20 
Additional paid-in capital
1,428,024 
1,281,452 
Accumulated other comprehensive loss
(719)
(562)
Accumulated deficit
(968,204)
(802,480)
Total stockholders’ equity
459,121 
478,430 
Total liabilities and stockholders’ equity
$ 962,556 
$ 899,745 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Oct. 31, 2017
Jan. 31, 2017
Accounts receivable, allowance
$ 2,073 
$ 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)
216,016,000 
204,364,000 
Common stock, shares outstanding (in shares)
216,016,000 
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)
109,178,000 
87,027,000 
Common stock, shares outstanding (in shares)
109,178,000 
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)
106,838,000 
117,337,000 
Common stock, shares outstanding (in shares)
106,837,859 
117,337,000 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 31, 2017
Oct. 31, 2016
Oct. 31, 2017
Oct. 31, 2016
Revenue:
 
 
 
 
Product
$ 223,196 
$ 160,523 
$ 536,634 
$ 403,181 
Support
54,478 
36,433 
148,132 
96,936 
Total revenue
277,674 
196,956 
684,766 
500,117 
Cost of revenue:
 
 
 
 
Product
75,392 
54,725 
179,289 
131,618 
Support
20,467 
14,597 
56,569 
41,531 
Total cost of revenue
95,859 
69,322 
235,858 
173,149 
Gross profit
181,815 
127,634 
448,908 
326,968 
Operating expenses:
 
 
 
 
Research and development
68,927 
61,612 
203,716 
173,185 
Sales and marketing
129,299 
91,392 
346,896 
262,073 
General and administrative
25,406 
22,810 
67,664 
64,021 
Legal settlement
30,000 
30,000 
Total operating expenses
223,632 
205,814 
618,276 
529,279 
Loss from operations
(41,817)
(78,180)
(169,368)
(202,311)
Other income (expense), net
1,138 
(192)
6,399 
1,127 
Loss before provision for income taxes
(40,679)
(78,372)
(162,969)
(201,184)
Provision for income taxes
970 
441 
2,755 
967 
Net loss
$ (41,649)
$ (78,813)
$ (165,724)
$ (202,151)
Net loss per share attributable to common stockholders, basic and diluted (in dollars per share)
$ (0.20)
$ (0.40)
$ (0.79)
$ (1.05)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted (in shares)
213,274 
195,807 
209,456 
192,637 
Condensed Consolidated Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 31, 2017
Oct. 31, 2016
Oct. 31, 2017
Oct. 31, 2016
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net loss
$ (41,649)
$ (78,813)
$ (165,724)
$ (202,151)
Other comprehensive income (loss):
 
 
 
 
Change in unrealized net gain (loss) on available-for-sale securities
(439)
(554)
(157)
298 
Comprehensive loss
$ (42,088)
$ (79,367)
$ (165,881)
$ (201,853)
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Oct. 31, 2017
Oct. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
Net loss
$ (165,724)
$ (202,151)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
Depreciation and amortization
45,525 
35,978 
Stock-based compensation expense
107,920 
79,129 
Other
879 
1,051 
Changes in operating assets and liabilities:
 
 
Accounts receivable, net
(33,630)
(38,186)
Inventory
(14,314)
(189)
Deferred commissions
(7,629)
1,844 
Prepaid expenses and other current assets
(112)
39 
Accounts payable
11,808 
3,639 
Accrued compensation and other liabilities
14,629 
6,786 
Deferred revenue
54,404 
60,180 
Net cash provided by (used in) operating activities
13,756 
(51,880)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
Purchases of property and equipment
(44,351)
(64,602)
Purchase of intangible assets
(1,000)
Purchases of marketable securities
(151,998)
(483,558)
Sales of marketable securities
46,067 
79,815 
Maturities of marketable securities
99,021 
38,213 
Net increase in restricted cash
(2,029)
(5,600)
Net cash used in investing activities
(53,290)
(436,732)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
Net proceeds from exercise of stock options
15,761 
10,725 
Proceeds from issuance of common stock under employee stock purchase plan
22,137 
25,606 
Net cash provided by financing activities
37,898 
36,331 
Net decrease in cash and cash equivalents
(1,636)
(452,281)
Cash and cash equivalents, beginning of period
183,675 
604,742 
Cash and cash equivalents, end of period
182,039 
152,461 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
Cash paid for income taxes
2,410 
2,510 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION
 
 
Property and equipment purchased but not yet paid
9,831 
5,956 
Vesting of early exercised stock options
$ 794 
$ 794 
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 corporate credit card program and letters of credit related to our facility leases. As of January 31, 2017 and October 31, 2017, we had restricted cash of $12.7 million and $14.8 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 (expense), 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 October 31, 2017, we recorded deferred commissions, current, of $15.8 million and $20.2 million, and deferred commissions, non-current, of $14.9 million and $18.2 million, in other assets, non-current, in the condensed consolidated balance sheets. We recognized sales commission expenses of $21.6 million and $38.3 million during the three months ended October 31, 2016 and 2017, and $58.8 million and $84.3 million during the nine months October 31, 2016 and 2017.
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. This standard may be adopted using either the full or modified retrospective methods. We anticipate adopting the standard retrospectively to all prior periods presented. While we are in the final stage of 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 believe the impact on our consolidated financial statements upon the adoption of this standard will be primarily an increase in revenue, a decrease in deferred revenue balance, a decrease in sales and marketing expenses and an increase in deferred commissions balance. The impact to revenue and deferred revenue balance is primarily attributable to the removal of current limitation on contingent revenue accelerating revenue recognition for certain contracts. The impact to sales and marketing expenses and deferred commissions balance is primarily attributable to a change in current amortization period from contract term to expected customer life as required by the new standard.  Additionally, we have made and will continue to make investments in systems to enable timely and accurate reporting under the new standard.
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 October 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 October 31, 2017
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Cash Equivalents
 
Marketable
Securities
 
Restricted Cash
Level 1
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market accounts
$

 
$

 
$

 
$
14,763

 
$

 
$

 
$
14,763

Level 2
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government treasury notes
144,297

 
6

 
(419
)
 
143,884

 
6,374

 
137,510

 

U.S. government agencies
44,517

 

 
(205
)
 
44,312

 

 
44,312

 

Corporate debt securities
187,616

 
209

 
(310
)
 
187,515

 

 
187,515

 

Total
$
376,430

 
$
215

 
$
(934
)
 
$
390,474

 
$
6,374

 
$
369,337

 
$
14,763


 
The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):
 
 
As of October 31, 2017
 
Amortized Cost
 
Fair Value
Due within one year
$
173,537

 
$
173,413

Due in one to five years
196,519

 
195,924

Total
$
370,056

 
$
369,337


 
Based on our evaluation of available evidence, we concluded that the gross unrealized losses on our marketable securities as of October 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 October 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
$
122,530

 
$
(381
)
 
$
3,965

 
$
(38
)
 
$
126,495

 
$
(419
)
U.S. government agencies
31,914

 
(106
)
 
12,398

 
(99
)
 
44,312

 
(205
)
Corporate debt securities
81,288

 
(168
)
 
24,941

 
(142
)
 
106,229

 
(310
)
Total
$
235,732

 
$
(655
)
 
$
41,304

 
$
(279
)
 
$
277,036

 
$
(934
)

 
Realized gains or losses on sale of marketable securities were not significant for all periods presented.
Balance Sheet Components
Balance Sheet Components
Balance Sheet Components
Inventory
Inventory consists of the following (in thousands):
 
As of
January 31, 2017
 
As of
October 31, 2017
Raw materials
$
3,003

 
$
5,926

Finished goods
20,495

 
31,282

Inventory
$
23,498

 
$
37,208


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

 
$
135,497

Computer equipment and software
54,521

 
66,270

Furniture and fixtures
4,494

 
5,337

Leasehold improvements
10,332

 
13,815

Total property and equipment
175,302

 
220,919

Less: accumulated depreciation and amortization
(93,607
)
 
(136,655
)
Property and equipment, net
$
81,695

 
$
84,264


 
Depreciation and amortization expense was $13.2 million and $15.2 million for the three months ended October 31, 2016 and 2017, and $34.9 million and $44.4 million for the nine months ended October 31, 2016 and 2017.
Intangible Assets, Net
Intangible assets, net, consist of the following (in thousands):
 
 
As of
January 31, 2017
 
As of
October 31, 2017
Technology patents
$
10,125

 
$
10,125

Accumulated amortization
(3,565
)
 
(4,693
)
Intangible assets, net
$
6,560

 
$
5,432


 
Intangible assets amortization expense was $376,000 for three months ended October 31, 2016 and 2017, and $1.0 million and $1.1 million for the nine months ended October 31, 2016 and 2017. The weighted-average remaining useful life of technology patents is 3.6 years. Due to the defensive nature of these patents, the amortization expense is included in general and administrative expenses in the condensed consolidated statements of operations.
As of October 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
$
376

2019
1,504

2020
1,504

2021
1,504

2022
544

Total
$
5,432


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

 
$
1,256

Accrued professional fees
1,765

 
1,430

Accrued marketing
6,718

 
8,899

Accrued travel and entertainment expenses
2,235

 
4,112

Income tax payable
1,135

 
1,620

Other accrued liabilities
9,304

 
7,628

Total accrued expenses and other liabilities
$
21,697

 
$
24,945

Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies

Operating Leases
 
During the nine months ended October 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. Additionally, 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 a total rent obligation and management fees of $32.2 million.
Letters of Credit
In connection with the lease executed in August 2017, we issued a letter of credit of $2.6 million. As of January 31, 2017 and October 31, 2017, we had outstanding letters of credit in the aggregate amount of $7.7 million and $9.6 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 August 2026.
Legal Matters
In September 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. Substantially identical lawsuits were subsequently filed in the same Court, bringing the same claims against the same defendants. In October 2016, these actions were consolidated under the caption In re Pure Storage, Inc. Shareholder Litigation. In January 2017 and May 2017, the defendants filed demurrers (motions to dismiss) to plaintiffs' complaints on the grounds that the plaintiffs failed to state a claim under the Securities Act, and both times, in April 2017 and August 2017, the Court sustained the demurrers in defendants' favor as to all claims with leave to amend. The plaintiffs subsequently agreed to dismiss the lawsuit entirely, with no amendment or appeal, and in October 2017, the Court dismissed the consolidated action without prejudice.
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 October 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 October 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 October 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 October 31, 2017109,177,866 shares of Class A common stock were issued and outstanding and 106,837,859 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 (the 2009 Plan) and the 2015 Equity Incentive Plan (the 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 initial public offering (IPO) and serves as the successor to the 2009 Plan. The 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 the 2009 Plan after the effective date of the 2015 Plan, and no new grants will be made from the 2009 Plan. Outstanding awards granted under the 2009 Plan will remain subject to the terms of the 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 expense related to our 2015 ESPP of $4.8 million and $4.7 million during the three months ended October 31, 2016 and 2017, and $13.4 million and $12.6 million during the nine months ended October 31, 2016 and 2017. As of October 31, 2017, there was $32.2 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 1.4 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
1,000,000

 
14.92

 
 
 
 

Options exercised
(5,502,179
)
 
2.86

 
 
 
 

Options forfeited/cancelled
(2,362,891
)
 
14.41

 
 
 
 

Balance as of October 31, 2017
49,975,119

 
$
7.43

 
6.4
 
$
457,252

Vested and exercisable as of October 31, 2017
30,500,061

 
$
4.84

 
5.9
 
$
355,871


 
 
The aggregate intrinsic value of options vested and exercisable as of October 31, 2017 is calculated based on the difference between the exercise price and the closing price of $16.43 of our Class A common stock on October 31, 2017.

The weighted average fair value of the options granted during the nine months ended October 31, 2017 was $5.58.
As of October 31, 2017, total unrecognized employee compensation cost related to outstanding options was $89.3 million, which is expected to be recognized over a weighted-average period of approximately 2.7 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
14,315,164

 
11.65

 


Vested
(3,627,367
)
 
12.33

 


Forfeited
(1,292,330
)
 
11.75

 


Unvested Balance as of October 31, 2017
18,178,491

 
$
12.21

 
$
298,674



As of October 31, 2017, total unrecognized employee compensation cost related to unvested restricted stock units was $191.6 million, which is expected to be recognized over a weighted-average period of approximately 2.6 years.

In March 2017, we granted 750,000 performance stock units (net of 77,000 canceled units during the nine months ended October 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. In August 2017, we granted 464,744 performance stock units with both performance and service vesting conditions payable in common shares from 0% to 120% of the target number granted, contingent upon the degree to which the performance condition is met.

For the performance stock units granted in March 2017, 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 performance stock units was $1.3 million and $2.9 million for the three and nine months ended October 31, 2017, recognized on an accelerated attribution method.

The performance condition for the performance stock units granted in August 2017 will be determined at a future date and accordingly, there is no grant date for these awards from an accounting perspective and grant date fair value is not considered in the calculation of weighted-average grant date fair value in the table above. No stock-based compensation expense was recognized for these performance awards in the three and nine months ended October 31, 2017.
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 
 October 31,
 
Nine Months Ended 
 October 31,
 
2016
 
2017
 
2016
 
2017
Cost of revenue—product
$
138

 
$
143

 
$
425

 
$
898

Cost of revenue—support
1,178

 
2,422

 
3,982

 
6,441

Research and development
15,241

 
18,073

 
40,875

 
51,632

Sales and marketing
8,468

 
12,104

 
24,719

 
34,169

General and administrative
3,210

 
6,121

 
9,128

 
14,780

Total stock-based compensation expense
$
28,235

 
$
38,863

 
$
79,129

 
$
107,920



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 
 October 31,
 
Nine Months Ended 
 October 31,
 
2016
 
2017
 
2016
 
2017
Net loss
$
(78,813
)
 
$
(41,649
)
 
$
(202,151
)
 
$
(165,724
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
195,807

 
213,274

 
192,637

 
209,456

Net loss per share attributable to common stockholders, basic and diluted
$
(0.40
)
 
$
(0.20
)
 
$
(1.05
)
 
$
(0.79
)


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 
 October 31,
 
Nine Months Ended 
 October 31,
 
2016
 
2017
 
2016
 
2017
Stock options to purchase common stock
62,874

 
51,685

 
65,594

 
53,786

Restricted stock units
6,342

 
17,201

 
4,155

 
14,913

Early exercised stock options
2,246

 
196

 
2,451

 
287

Employee stock purchase plan
434

 
585

 
434

 
585

Total
71,896

 
69,667

 
72,634

 
69,571

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 October 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 
 October 31,
 
Nine Months Ended 
 October 31,
 
2016
 
2017
 
2016
 
2017
United States
$
152,134

 
$
192,977

 
$
385,464

 
$
504,937

Rest of the world
44,822

 
84,697

 
114,653

 
179,829

Total revenue
$
196,956

 
$
277,674

 
$
500,117

 
$
684,766


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

 
$
80,387

Rest of the world
3,003

 
3,877

Total long-lived assets
$
81,695

 
$
84,264

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 corporate 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 (expense), 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. This standard may be adopted using either the full or modified retrospective methods. We anticipate adopting the standard retrospectively to all prior periods presented. While we are in the final stage of 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 believe the impact on our consolidated financial statements upon the adoption of this standard will be primarily an increase in revenue, a decrease in deferred revenue balance, a decrease in sales and marketing expenses and an increase in deferred commissions balance. The impact to revenue and deferred revenue balance is primarily attributable to the removal of current limitation on contingent revenue accelerating revenue recognition for certain contracts. The impact to sales and marketing expenses and deferred commissions balance is primarily attributable to a change in current amortization period from contract term to expected customer life as required by the new standard.  Additionally, we have made and will continue to make investments in systems to enable timely and accurate reporting under the new standard.
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 October 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 October 31, 2017
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Cash Equivalents
 
Marketable
Securities
 
Restricted Cash
Level 1
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market accounts
$

 
$

 
$

 
$
14,763

 
$

 
$

 
$
14,763

Level 2
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government treasury notes
144,297

 
6

 
(419
)
 
143,884

 
6,374

 
137,510

 

U.S. government agencies
44,517

 

 
(205
)
 
44,312

 

 
44,312

 

Corporate debt securities
187,616

 
209

 
(310
)
 
187,515

 

 
187,515

 

Total
$
376,430

 
$
215

 
$
(934
)
 
$
390,474

 
$
6,374

 
$
369,337

 
$
14,763

The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):
 
 
As of October 31, 2017
 
Amortized Cost
 
Fair Value
Due within one year
$
173,537

 
$
173,413

Due in one to five years
196,519

 
195,924

Total
$
370,056

 
$
369,337

The following table presents gross unrealized losses and fair values for those investments that were in a continuous unrealized loss as of October 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
$
122,530

 
$
(381
)
 
$
3,965

 
$
(38
)
 
$
126,495

 
$
(419
)
U.S. government agencies
31,914

 
(106
)
 
12,398

 
(99
)
 
44,312

 
(205
)
Corporate debt securities
81,288

 
(168
)
 
24,941

 
(142
)
 
106,229

 
(310
)
Total
$
235,732

 
$
(655
)
 
$
41,304

 
$
(279
)
 
$
277,036

 
$
(934
)
Balance Sheet Components (Tables)
Inventory consists of the following (in thousands):
 
As of
January 31, 2017
 
As of
October 31, 2017
Raw materials
$
3,003

 
$
5,926

Finished goods
20,495

 
31,282

Inventory
$
23,498

 
$
37,208

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

 
$
135,497

Computer equipment and software
54,521

 
66,270

Furniture and fixtures
4,494

 
5,337

Leasehold improvements
10,332

 
13,815

Total property and equipment
175,302

 
220,919

Less: accumulated depreciation and amortization
(93,607
)
 
(136,655
)
Property and equipment, net
$
81,695

 
$
84,264

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

 
$
10,125

Accumulated amortization
(3,565
)
 
(4,693
)
Intangible assets, net
$
6,560

 
$
5,432

As of October 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
$
376

2019
1,504

2020
1,504

2021
1,504

2022
544

Total
$
5,432

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

 
$
1,256

Accrued professional fees
1,765

 
1,430

Accrued marketing
6,718

 
8,899

Accrued travel and entertainment expenses
2,235

 
4,112

Income tax payable
1,135

 
1,620

Other accrued liabilities
9,304

 
7,628

Total accrued expenses and other liabilities
$
21,697

 
$
24,945

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
1,000,000

 
14.92

 
 
 
 

Options exercised
(5,502,179
)
 
2.86

 
 
 
 

Options forfeited/cancelled
(2,362,891
)
 
14.41

 
 
 
 

Balance as of October 31, 2017
49,975,119

 
$
7.43

 
6.4
 
$
457,252

Vested and exercisable as of October 31, 2017
30,500,061

 
$
4.84

 
5.9
 
$
355,871

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
14,315,164

 
11.65

 


Vested
(3,627,367
)
 
12.33

 


Forfeited
(1,292,330
)
 
11.75

 


Unvested Balance as of October 31, 2017
18,178,491

 
$
12.21

 
$
298,674

The following table summarizes the components of stock-based compensation expense recognized in the condensed consolidated statements of operations (in thousands):
 
 
Three Months Ended 
 October 31,
 
Nine Months Ended 
 October 31,
 
2016
 
2017
 
2016
 
2017
Cost of revenue—product
$
138

 
$
143

 
$
425

 
$
898

Cost of revenue—support
1,178

 
2,422

 
3,982

 
6,441

Research and development
15,241

 
18,073

 
40,875

 
51,632

Sales and marketing
8,468

 
12,104

 
24,719

 
34,169

General and administrative
3,210

 
6,121

 
9,128

 
14,780

Total stock-based compensation expense
$
28,235

 
$
38,863

 
$
79,129

 
$
107,920

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 
 October 31,
 
Nine Months Ended 
 October 31,
 
2016
 
2017
 
2016
 
2017
Net loss
$
(78,813
)
 
$
(41,649
)
 
$
(202,151
)
 
$
(165,724
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
195,807

 
213,274

 
192,637

 
209,456

Net loss per share attributable to common stockholders, basic and diluted
$
(0.40
)
 
$
(0.20
)
 
$
(1.05
)
 
$
(0.79
)
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 
 October 31,
 
Nine Months Ended 
 October 31,
 
2016
 
2017
 
2016
 
2017
Stock options to purchase common stock
62,874

 
51,685

 
65,594

 
53,786

Restricted stock units
6,342

 
17,201

 
4,155

 
14,913

Early exercised stock options
2,246

 
196

 
2,451

 
287

Employee stock purchase plan
434

 
585

 
434

 
585

Total
71,896

 
69,667

 
72,634

 
69,571

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 
 October 31,
 
Nine Months Ended 
 October 31,
 
2016
 
2017
 
2016
 
2017
United States
$
152,134

 
$
192,977

 
$
385,464

 
$
504,937

Rest of the world
44,822

 
84,697

 
114,653

 
179,829

Total revenue
$
196,956

 
$
277,674

 
$
500,117

 
$
684,766

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

 
$
80,387

Rest of the world
3,003

 
3,877

Total long-lived assets
$
81,695

 
$
84,264

Basis of Presentation and Summary of Significant Accounting Policies - Additional Information (Details) (USD $)
3 Months Ended 9 Months Ended
Oct. 31, 2017
Oct. 31, 2016
Oct. 31, 2017
Oct. 31, 2016
Jan. 31, 2017
Accounting Policies [Abstract]
 
 
 
 
 
Restricted cash
$ 14,800,000 
 
$ 14,800,000 
 
$ 12,734,000 
Deferred commissions, current
20,200,000 
 
20,200,000 
 
15,787,000 
Deferred income taxes, non-current
18,200,000 
 
18,200,000 
 
14,900,000 
Sales commission expenses
$ 38,300,000 
$ 21,600,000 
$ 84,300,000 
$ 58,800,000 
 
Financial Instruments - Summary of Cash Equivalents, Marketable Securities and Restricted Cash by Significant Investment Categories (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2017
Jan. 31, 2017
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
$ 376,430 
$ 376,774 
Gross Unrealized Gains
215 
268 
Gross Unrealized Losses
(934)
(830)
Fair Value
390,474 
388,946 
Cash Equivalents
6,374 
13,226 
Marketable Securities
369,337 
362,986 
Restricted Cash
14,800 
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
14,763 
12,734 
Cash Equivalents
Marketable Securities
Restricted Cash
14,763 
12,734 
U.S. government treasury notes |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
144,297 
148,298 
Gross Unrealized Gains
22 
Gross Unrealized Losses
(419)
(289)
Fair Value
143,884 
148,031 
Cash Equivalents
6,374 
13,226 
Marketable Securities
137,510 
134,805 
Restricted Cash
U.S. government agencies |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
44,517 
40,398 
Gross Unrealized Gains
Gross Unrealized Losses
(205)
(159)
Fair Value
44,312 
40,241 
Cash Equivalents
Marketable Securities
44,312 
40,241 
Restricted Cash
Corporate debt securities |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
187,616 
185,701 
Gross Unrealized Gains
209 
242 
Gross Unrealized Losses
(310)
(379)
Fair Value
187,515 
185,564 
Cash Equivalents
Marketable Securities
187,515 
185,564 
Restricted Cash
Foreign government bonds |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
 
2,377 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
(3)
Fair Value
 
2,376 
Cash Equivalents
 
Marketable Securities
 
2,376 
Restricted Cash
 
$ 0 
Financial Instruments - Schedule of Amortized Cost and Estimated Fair Value of Marketable Securities by Contractual Maturity (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2017
Investments, Debt and Equity Securities [Abstract]
 
Due within one year, Amortized Cost
$ 173,537 
Due in one to five years, Amortized Cost
196,519 
Total, Amortized Cost
370,056 
Due within one year, Fair Value
173,413 
Due in one to five years, Fair Value
195,924 
Total, Fair Value
$ 369,337 
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
Oct. 31, 2017
Fair Value
 
Less than 12 months
$ 235,732 
Greater than 12 months
41,304 
Total
277,036 
Unrealized Loss
 
Less than 12 months
(655)
Greater than 12 months
(279)
Total
(934)
U.S. government treasury notes
 
Fair Value
 
Less than 12 months
122,530 
Greater than 12 months
3,965 
Total
126,495 
Unrealized Loss
 
Less than 12 months
(381)
Greater than 12 months
(38)
Total
(419)
U.S. government agencies
 
Fair Value
 
Less than 12 months
31,914 
Greater than 12 months
12,398 
Total
44,312 
Unrealized Loss
 
Less than 12 months
(106)
Greater than 12 months
(99)
Total
(205)
Corporate debt securities
 
Fair Value
 
Less than 12 months
81,288 
Greater than 12 months
24,941 
Total
106,229 
Unrealized Loss
 
Less than 12 months
(168)
Greater than 12 months
(142)
Total
$ (310)
Balance Sheet Components - Schedule of Inventory (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2017
Jan. 31, 2017
Balance Sheet Components Disclosure [Abstract]
 
 
Raw materials
$ 5,926 
$ 3,003 
Finished goods
31,282 
20,495 
Inventory
$ 37,208 
$ 23,498 
Balance Sheet Components - Schedule of Property and Equipment, Net (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2017
Jan. 31, 2017
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
$ 220,919 
$ 175,302 
Less: accumulated depreciation and amortization
(136,655)
(93,607)
Property and equipment, net
84,264 
81,695 
Test equipment
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
135,497 
105,955 
Computer equipment and software
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
66,270 
54,521 
Furniture and fixtures
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
5,337 
4,494 
Leasehold improvements
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
$ 13,815 
$ 10,332 
Balance Sheet Components - Additional Information (Details) (USD $)
3 Months Ended 9 Months Ended
Oct. 31, 2017
Oct. 31, 2016
Oct. 31, 2017
Oct. 31, 2016
Balance Sheet Components Disclosure [Abstract]
 
 
 
 
Depreciation and amortization
$ 15,200,000 
$ 13,200,000 
$ 44,400,000 
$ 34,900,000 
Intangible assets amortization expense
$ 376,000 
$ 376,000 
$ 1,100,000 
$ 1,000,000 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Weighted-average remaining useful life
 
 
3 years 7 months 6 days 
 
Balance Sheet Components - Schedule of Intangible Assets, Net (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2017
Jan. 31, 2017
Finite-Lived Intangible Assets [Line Items]
 
 
Intangible assets, net
$ 5,432 
$ 6,560 
Technology patents
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Technology patents
10,125 
10,125 
Accumulated amortization
(4,693)
(3,565)
Intangible assets, net
$ 5,432 
$ 6,560 
Balance Sheet Components - Schedule of Expected Amortization Expenses for Intangible Assets (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2017
Jan. 31, 2017
Balance Sheet Components Disclosure [Abstract]
 
 
Remainder of 2018
$ 376 
 
2019
1,504 
 
2020
1,504 
 
2021
1,504 
 
2022
544 
 
Intangible assets, net
$ 5,432 
$ 6,560 
Balance Sheet Components - Schedule of Accrued Expenses and Other Liabilities (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2017
Jan. 31, 2017
Balance Sheet Components Disclosure [Abstract]
 
 
Sales and use tax payable
$ 1,256 
$ 540 
Accrued professional fees
1,430 
1,765 
Accrued marketing
8,899 
6,718 
Accrued travel and entertainment expenses
4,112 
2,235 
Income tax payable
1,620 
1,135 
Other accrued liabilities
7,628 
9,304 
Total accrued expenses and other liabilities
$ 24,945 
$ 21,697 
Commitments and Contingencies - Additional Information (Details) (USD $)
In Millions, unless otherwise specified
1 Months Ended
Aug. 31, 2017
sqft
Oct. 31, 2017
Jan. 31, 2017
Oct. 31, 2016
Commitments and Contingencies Disclosure [Abstract]
 
 
 
 
Total operating lease obligations
 
$ 2.0 
 
 
Lease term
7 years 
 
 
 
Area of leased office space (in sqft)
45,831 
 
 
 
Base rent obligation
32.2 
 
 
 
Outstanding letters of credit
$ 2.6 
 
$ 7.7 
$ 9.6 
Stockholders' Equity - Additional Information (Details) (USD $)
Oct. 31, 2017
class
Jan. 31, 2017
Class Of Stock [Line Items]
 
 
Preferred stock, shares authorized (in shares)
20,000,000 
20,000,000 
Preferred stock, shares issued (in shares)
Preferred stock, shares outstanding (in shares)
Number of classes of stock
 
Common stock, shares authorized (in shares)
2,250,000,000 
2,250,000,000