PURE STORAGE, INC., 10-Q filed on 12/13/2016
Quarterly Report
Document and Entity Information
9 Months Ended
Oct. 31, 2016
Dec. 6, 2016
Class A Common Stock
Dec. 6, 2016
Class B Common Stock
Document Type
10-Q 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Oct. 31, 2016 
 
 
Document Fiscal Year Focus
2016 
 
 
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
Non-accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
82,493,782 
117,381,478 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2016
Jan. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 152,461 
$ 604,742 
Marketable securities
365,785 
Accounts receivable, net of allowance of $944 and $2,414 as of January 31, 2016 and October 31, 2016
163,038 
126,324 
Inventory
20,112 
20,649 
Deferred commissions, current
14,298 
15,700 
Prepaid expenses and other current assets
18,756 
20,652 
Total current assets
734,450 
788,070 
Property and equipment, net
82,088 
52,629 
Intangible assets, net
6,936 
6,980 
Deferred income taxes, non-current
1,074 
536 
Other assets, non-current
29,588 
22,568 
Total assets
854,136 
870,783 
Current liabilities:
 
 
Accounts payable
43,412 
38,187 
Accrued compensation and benefits
29,137 
32,995 
Accrued expenses and other liabilities
20,545 
14,076 
Deferred revenue, current
134,536 
94,514 
Liability related to early exercised stock options
3,967 
4,760 
Total current liabilities
231,597 
184,532 
Deferred revenue, non-current
141,849 
121,690 
Other liabilities, non-current
2,925 
1,207 
Total liabilities
376,371 
307,429 
Commitments and contingencies
Stockholders’ equity:
 
 
Preferred stock, par value of $0.0001 per share— 20,000 shares authorized as of January 31, 2016 and October 31, 2016; no shares issued and outstanding as of January 31, 2016 and October 31, 2016
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, 2016 and October 31, 2016; 190,509 (Class A 28,769, Class B 161,740) and 199,678 (Class A 75,320, Class B 124,358) shares issued and outstanding as of January 31, 2016 and October 31, 2016
20 
19 
Additional paid-in capital
1,237,012 
1,118,670 
Accumulated other comprehensive income
298 
Accumulated deficit
(759,565)
(555,335)
Total stockholders’ equity
477,765 
563,354 
Total liabilities and stockholders’ equity
$ 854,136 
$ 870,783 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Oct. 31, 2016
Jan. 31, 2016
Accounts receivable, allowance
$ 2,414 
$ 944 
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)
199,678,000 
190,509,000 
Common stock, shares outstanding (in shares)
199,678,000 
190,509,000 
Class A Common Stock
 
 
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)
75,319,966 
28,769,000 
Common stock, shares outstanding (in shares)
75,320,000 
28,769,000 
Class B Common Stock
 
 
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)
124,358,000 
161,740,000 
Common stock, shares outstanding (in shares)
124,357,633 
161,740,000 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 31, 2016
Oct. 31, 2015
Oct. 31, 2016
Oct. 31, 2015
Revenue:
 
 
 
 
Product
$ 160,523 
$ 113,573 
$ 403,181 
$ 248,383 
Support
36,433 
17,791 
96,936 
41,719 
Total revenue
196,956 
131,364 
500,117 
290,102 
Cost of revenue:
 
 
 
 
Product
54,725 
41,995 
131,618 
92,348 
Support
14,597 
9,058 
41,531 
23,479 
Total cost of revenue
69,322 
51,053 
173,149 
115,827 
Gross profit
127,634 
80,311 
326,968 
174,275 
Operating expenses:
 
 
 
 
Research and development
61,612 
43,065 
173,185 
112,935 
Sales and marketing
91,392 
63,803 
262,073 
171,647 
General and administrative
22,810 
29,022 
64,021 
56,941 
Legal settlement
30,000 
30,000 
Total operating expenses
205,814 
135,890 
529,279 
341,523 
Loss from operations
(78,180)
(55,579)
(202,311)
(167,248)
Other income (expense), net
(192)
(171)
1,127 
(1,245)
Loss before provision for income taxes
(78,372)
(55,750)
(201,184)
(168,493)
Provision for income taxes
441 
751 
967 
965 
Net loss
$ (78,813)
$ (56,501)
$ (202,151)
$ (169,458)
Net loss per share attributable to common stockholders, basic and diluted (in dollars per share)
$ (0.40)
$ (0.76)
$ (1.05)
$ (3.60)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted (in shares)
195,807 
74,565 
192,637 
47,109 
Condensed Consolidated Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 31, 2016
Oct. 31, 2015
Oct. 31, 2016
Oct. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net loss
$ (78,813)
$ (56,501)
$ (202,151)
$ (169,458)
Other comprehensive income, net of tax effect:
 
 
 
 
Change in unrealized net gain on available-for-sale securities
(554)
298 
Comprehensive loss
$ (79,367)
$ (56,501)
$ (201,853)
$ (169,458)
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Oct. 31, 2016
Oct. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
Net loss
$ (202,151)
$ (169,458)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
Depreciation and amortization
35,978 
23,118 
Stock-based compensation expense
79,129 
36,198 
Contribution of common stock to Pure Good Foundation
11,900 
Other
1,051 
Changes in operating assets and liabilities:
 
 
Accounts receivable, net
(38,186)
(53,094)
Inventory
(189)
(3,420)
Deferred commissions
1,844 
(8,472)
Prepaid expenses and other assets
39 
(2,065)
Accounts payable
3,639 
10,224 
Accrued compensation and other liabilities
6,786 
17,216 
Deferred revenue
60,180 
87,987 
Net cash used in operating activities
(51,880)
(49,866)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
Purchases of property and equipment
(64,602)
(29,495)
Purchase of intangible assets
(1,000)
Purchases of marketable securities
(483,558)
Sales of marketable securities
79,815 
Maturities of marketable securities
38,213 
Net increase in restricted cash
(5,600)
(2,484)
Net cash used in investing activities
(436,732)
(31,979)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
Proceeds from initial public offering, net
459,425 
Net proceeds from exercise of stock options
10,725 
4,710 
Proceeds from issuance of common stock under employee stock purchase plan
25,606 
Payments of deferred offering costs
(1,690)
Net cash provided by financing activities
36,331 
462,445 
Net increase (decrease) in cash and cash equivalents
(452,281)
380,600 
Cash and cash equivalents, beginning of period
604,742 
192,707 
Cash and cash equivalents, end of period
152,461 
573,307 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
Cash paid for income taxes
2,510 
820 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION
 
 
Conversion of convertible preferred stock to common stock upon initial public offering
543,940 
Property and equipment purchased but not yet paid
5,956 
1,750 
Vesting of early exercised stock options
794 
1,543 
Unpaid deferred offering costs
$ 0 
$ 2,748 
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 provide an enterprise data storage 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 fiscal year ended January 31, 2016.
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 2017 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 are believed 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 leases. As of January 31, 2016 and October 31, 2016, we had restricted cash of $7.1 million and $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, net of tax, in other comprehensive income (loss), which is reflected as a component of stockholders’ equity. We determine any realized gains or losses on the sale of marketable securities on a specific identification method. In addition, we evaluate our securities to assess whether those with unrealized loss positions are other than temporarily impaired. Realized gains and losses and declines in value deemed to be other than temporary 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, 2016 and October 31, 2016, we recorded deferred commissions, current, of $15.7 million and $14.3 million, and deferred commissions, non-current, of $14.3 million and $13.8 million, in other assets, non-current, in the condensed consolidated balance sheets. We recognized sales commission expenses of $16.5 million and $21.6 million during the three months ended October 31, 2015 and 2016 and $38.6 million and $58.8 million during the nine months ended October 31, 2015 and 2016.
Revenue Recognition
We derive revenue from two sources: (1) product revenue which includes hardware and embedded software and (2) support revenue which includes customer support, hardware maintenance and software upgrades on a when-and-if-available basis.

Most of our arrangements, other than stand-alone renewals of maintenance and support agreements, are multiple-element arrangements with a combination of product and support related deliverables (as defined above). Under multiple-element arrangements, we allocate consideration at the inception of an arrangement to all deliverables based on the relative selling price method in accordance with the hierarchy provided by the multiple-element arrangement accounting guidance, which includes (i) vendor-specific objective evidence (“VSOE”), of selling price, if available; (ii) third-party evidence (“TPE”), of selling price, if VSOE is not available; and (iii) best estimate of selling price (“BESP”), if neither VSOE nor TPE is available. We determine VSOE based on our historical pricing and discounting practices for the specific products and services when sold separately. In determining VSOE, we require that a substantial majority of the stand-alone selling prices fall within a reasonably narrow pricing range. During the three months ended October 31, 2016, we established VSOE for support related deliverables as our stand-alone selling prices are now sufficiently concentrated based on an analysis of our historical data. As we have not established VSOE for any of our other deliverables and TPE cannot be obtained as our products contain a significant element of proprietary technology and our solutions offer substantially different features and functionality and hence are not comparable, we allocate consideration to all other deliverables based on BESP.
Recently Adopted Accounting Standard
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). We elected to early adopt this standard in the second quarter of fiscal 2017 with February 1, 2016 being the effective date of adoption. Under ASU 2016-09, excess tax benefits and deficiencies are recognized prospectively in our provision for income taxes rather than additional paid-in capital. As a result of the adoption, our provision for income taxes decreased by $921,000 during the nine months ended October 31, 2016. Additionally, we elected to account for forfeitures as they occur rather than estimate expected forfeiture using a modified retrospective transition method. Accordingly, we recorded a cumulative-effect adjustment of $2.1 million to accumulated deficit and an increase of stock-based compensation expense of $864,000 during the three months ended April 30, 2016. Finally, ASU 2016-09 requires excess tax benefits to be presented as a component of operating cash flows rather than financing cash flows. We elected to adopt this requirement prospectively and accordingly, prior periods have not been adjusted. Excess tax benefits were not material for all periods presented.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued 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, and thus, the new standard will be effective for us beginning on February 1, 2018 with early adoption permitted on or after February 1, 2017. This standard may be adopted using either the full or modified retrospective methods. We are currently evaluating adoption methods and the impact of this standard 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 October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 will be effective for us beginning on February 1, 2018 and will be applied on a modified retrospective basis. Early adoption is permitted. We do not expect the adoption of this standard to have any impact 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 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, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques.
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, 2016 and October 31, 2016 (in thousands):
 
 
As of January 31, 2016
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Cash Equivalents
 
Restricted Cash
Level 1
 

 
 

 
 

 
 

 
 

 
 

Money market funds
$
45,614

 
$

 
$

 
$
45,614

 
$
45,614

 
$

Level 2
 
 
 
 
 
 
 
 
 
 
 
Certificate of deposits
7,132

 

 

 
7,132

 

 
7,132

Total
$
52,746

 
$

 
$

 
$
52,746

 
$
45,614

 
$
7,132


 
As of October 31, 2016
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Cash Equivalents
 
Marketable
Securities
 
Restricted Cash
Level 1
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market accounts
$

 
$

 
$

 
$

 
$

 
$

 
$
12,734

Level 2
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government treasury notes
143,532

 
67

 
(27
)
 
143,572

 
14,949

 
128,623

 

U.S. government agencies
41,161

 
13

 
(55
)
 
41,119

 

 
41,119

 

Corporate debt securities
192,944

 
581

 
(110
)
 
193,415

 

 
193,415

 

Foreign government bonds
2,625

 
3

 

 
2,628

 

 
2,628

 

Total
$
380,262

 
$
664

 
$
(192
)
 
$
380,734

 
$
14,949

 
$
365,785

 
$
12,734


 
The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):
 
 
As of October 31, 2016
 
Amortized Cost
 
Fair Value
Due within one year
$
95,602

 
$
95,673

Due in one to five years
269,711

 
270,112

Total
$
365,313

 
$
365,785


 
As of October 31, 2016, there were no securities that were in an unrealized loss position for more than 12 months. Based on our evaluation of available evidence, we concluded that the gross unrealized losses on our marketable securities as of October 31, 2016 were temporary in nature. The following table presents gross unrealized losses and fair values for those investments that were in a continuous unrealized loss position for less than 12 months as of October 31, 2016, aggregated by investment category (in thousands):
 
 
Less than 12 months
 
Fair
Value
 
Unrealized
Loss
U.S. government treasury notes
$
35,647

 
$
(27
)
U.S. government agencies
28,274

 
(55
)
Corporate debt securities
47,483

 
(110
)
Total
$
111,404

 
$
(192
)

 
Gross realized gains on sale of marketable securities for the three and nine months ended October 31, 2016 were $65,000 and $175,000, respectively.
Balance Sheet Components
Balance Sheet Components
Balance Sheet Components
Property and Equipment, Net
Property and equipment, net, consists of the following (in thousands):
 
 
As of
January 31, 2016
 
As of
October 31, 2016
Test equipment
$
65,663

 
$
103,491

Computer, equipment and software
31,388

 
50,235

Furniture and fixtures
2,852

 
4,072

Leasehold improvements
4,935

 
9,902

Total property and equipment
104,838

 
167,700

Less: accumulated depreciation and amortization
(52,209
)
 
(85,612
)
Property and equipment, net
$
52,629

 
$
82,088


 
Depreciation and amortization expense was $8.5 million and $13.2 million for the three months ended October 31, 2015 and 2016 and $22.1 million and $34.9 million for the nine months ended October 31, 2015 and 2016, respectively.
Intangible Assets, Net
Intangible assets, net, consist of the following (in thousands):
 
 
As of
January 31, 2016
 
As of
October 31, 2016
Technology patents
$
9,125

 
$
10,125

Accumulated amortization
(2,145
)
 
(3,189
)
Intangible assets, net
$
6,980

 
$
6,936


 
Intangible assets amortization expense was $326,000 and $376,000 for the three months ended October 31, 2015 and 2016 and $978,000 and $1.0 million for the nine months ended October 31, 2015 and 2016.  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 October 31, 2016, expected amortization expense for intangible assets for each of the next five years and thereafter is as follows (in thousands):
 
Fiscal Years Ending January 31,
Estimated 
Future
Amortization
Expense
Remainder of 2017
$
376

2018
1,504

2019
1,504

2020
1,504

2021
1,504

Thereafter
544

Total
$
6,936


Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
 
 
As of January 31, 2016
 
As of October 31, 2016
Sales and use tax payable
$
299

 
$
406

Accrued professional fees
3,044

 
3,256

Accrued marketing
2,684

 
6,908

Accrued travel and entertainment expenses
2,182

 
2,977

Income tax payable
1,791

 
974

Other accrued liabilities
4,076

 
6,024

Total accrued expenses and other liabilities
$
14,076

 
$
20,545

Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies

Operating Leases
 
During the nine months ended October 31, 2016, we entered into four office facility lease agreements and an amendment to an existing office facility lease agreement with total additional lease obligations of approximately $43.7 million with lease periods expiring through June 2024.
Letters of Credit
As of January 31, 2016 and October 31, 2016, we had outstanding letters of credit in the aggregate amount of $7.1 million and $7.7 million respectively, 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 November 4, 2013, EMC filed a complaint against us in the U.S. District Court for the District of Massachusetts, alleging misappropriation of confidential information and trade secrets and unlawful interference with business and contractual relationships. The complaint sought damages and injunctive relief. On November 26, 2013 and November 18, 2014, we counterclaimed, alleging, among other things, misappropriation of trade secrets, unlawful interference with contractual and business relationships, unfair competition, commercial disparagement, and defamation. Our counterclaim sought damages and declaratory and injunctive relief. In separate litigation matters, on November 26, 2013 and March 21, 2016, EMC filed complaints against us in the U.S. District Court for the District of Delaware, alleging patent infringement. The complaints sought damages and injunctive and equitable relief.
On October 18, 2016, we entered into an agreement with Dell Inc. (Dell), as successor-in-interest to EMC to settle all litigation between EMC and us. The terms of the settlement include a payment to Dell, the dismissal of all litigation between the parties, mutual releases, and a license to the disputed patent. Accordingly, we paid Dell a one-time settlement amount of $30.0 million, and all litigation between EMC and us was dismissed prior to October 31, 2016. Settlement discussions started subsequent to the filing of our Quarterly Report on Form 10-Q for the three months ended July 31, 2016. We evaluated the settlement as a multiple-element arrangement, which requires us to allocate the one-time payment to the identifiable elements based on their relative fair values. Based on our estimates of fair value, we determined that the sole benefit of the settlement is to avoid further litigation costs with no value attributable to future use or benefit. Accordingly, we recorded the $30.0 million as a legal settlement charge in general and administrative expenses during the three months ended October 31, 2016.
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, asserting claims under sections 11, 12 and 15 of the Securities Act of 1933 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.  We expect that the plaintiffs will file a consolidated complaint on December 13, 2016. 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 October 31, 2016.
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
Upon the closing of our initial public offering (IPO) in October 2015, we filed an Amended and Restated Certificate of Incorporation, which authorized 20,000,000 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, 2016, 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, 2016, 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, 201675,319,966 shares of Class A common stock were issued and outstanding and 124,357,633 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 of 2016 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 of 2016 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). Except for the initial offering period, the 2015 ESPP provides for 24 month offering periods beginning March 16th and September 16th of each year, and each offering period will consist 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. The initial offering period began on October 7, 2015 and ended on March 15, 2016 as our closing stock price on the new offering date of March 16, 2016 was lower than the closing stock price on October 7, 2015, which triggered an ESPP reset. The ESPP reset resulted in a modification charge of approximately $10.6 million which is being recognized over the new 24-month offering period ending March 15, 2018.
We recognized stock-based compensation related to our 2015 ESPP of $907,000 and $4.8 million during the three months ended October 31, 2015 and 2016 and $907,000 and $13.4 million during the nine months ended October 31, 2015 and 2016. As of October 31, 2016, there was $27.2 million of unrecognized stock-based compensation expense related to our 2015 ESPP that is expected to be recognized over the term of the related offering periods.
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, 2016
68,879,087

 
$
6.43

 
7.9
 
$
505,131

Options granted
1,999,000

 
12.69

 
 
 
 

Options exercised
(6,111,682
)
 
1.75

 
 
 
 

Options forfeited/cancelled
(2,196,344
)
 
11.67

 
 
 
 

Balance as of October 31, 2016
62,570,061

 
$
6.90

 
7.3
 
$
400,802

Vested and exercisable as of October 31, 2016
27,652,418

 
$
3.59

 
6.4
 
$
250,249


 
 
The aggregate intrinsic value of options vested and exercisable as of October 31, 2016 is calculated based on the difference between the exercise price and the closing price of $12.34 of our Class A common stock on October 31, 2016.
As of October 31, 2016, total unrecognized employee compensation cost related to outstanding options was $153.3 million, which is expected to be recognized over a weighted-average period of approximately 3.1 years.
During the three months ended October 31, 2015 and nine months ended October 31, 2015 and 2016, we granted options to purchase 50,000, 133,000 and 780,000 shares of common stock that vest upon satisfaction of a performance condition. No performance options were granted during the three months ended October 31, 2016. For those options that management determined it is probable that the performance condition will be satisfied, we recognized stock-based compensation expense of $797,000 and $193,000 for the three months ended October 31, 2015 and 2016 and $1.8 million and $2.2 million for the nine months ended October 31, 2015 and 2016.
In November 2016, we modified certain employee stock option awards to accelerate the vesting, contingent, in part, on certain conditions. This modification is expected to result in stock-based compensation expense of $5.9 million to be recognized during the three months ended January 31, 2017.

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
Unvested Balance as of January 31, 2016
53,000

 
$
16.98

Granted
8,906,750

 
13.36

Vested
(622,500
)
 
14.13

Forfeited
(309,878
)
 
13.69

Unvested Balance as of October 31, 2016
8,027,372

 
$
13.32


 
As of October 31, 2016, total unrecognized employee compensation cost related to outstanding restricted stock units was $98.1 million, which is expected to be recognized over a weighted-average period of approximately 2.8 years.
Stock-Based Compensation Expense
The following table summarizes the components of stock-based compensation expense recognized in the condensed consolidated statements of operations (in thousands):
 
 
Three Months Ended 
 October 31,
 
Nine Months Ended 
 October 31,
 
2015
 
2016
 
2015
 
2016
Cost of revenue—product
$
43

 
$
138

 
$
139

 
$
425

Cost of revenue—support
657

 
1,178

 
1,511

 
3,982

Research and development
8,195

 
15,241

 
18,624

 
40,875

Sales and marketing
4,559

 
8,468

 
10,539

 
24,719

General and administrative
2,085

 
3,210

 
5,385

 
9,128

Total stock-based compensation expense
$
15,539

 
$
28,235

 
$
36,198

 
$
79,129

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. We consider all series of our convertible preferred stock to be participating securities. Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the holders of our convertible preferred stock do not have a contractual obligation to share in our losses.
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 potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, convertible preferred stock, 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,
 
2015
 
2016
 
2015
 
2016
Net loss
$
(56,501
)
 
$
(78,813
)
 
$
(169,458
)
 
$
(202,151
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
74,565

 
195,807

 
47,109

 
192,637

Net loss per share attributable to common stockholders, basic and diluted
$
(0.76
)
 
$
(0.40
)
 
$
(3.60
)
 
$
(1.05
)


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,
 
2015
 
2016
 
2015
 
2016
Stock options to purchase common stock
63,738

 
62,874

 
59,611

 
65,594

Restricted stock units

 
6,342

 

 
4,155

Early exercised stock options
3,318

 
2,246

 
3,849

 
2,451

Employee stock purchase plan

 
434

 

 
434

Total
67,056

 
71,896

 
63,460

 
72,634

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, 2016, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for the fiscal year ended January 31, 2016.
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,
 
2015
 
2016
 
2015
 
2016
United States
$
105,615

 
$
152,134

 
$
229,892

 
$
385,464

Rest of the world
25,749

 
44,822

 
60,210

 
114,653

Total revenue
$
131,364

 
$
196,956

 
$
290,102

 
$
500,117


 
Long-lived assets by geographic area are summarized as follows (in thousands):
 
 
As of
January 31, 2016
 
As of
October 31, 2016
United States
$
50,501

 
$
78,952

Rest of the world
2,128

 
3,136

Total long-lived assets
$
52,629

 
$
82,088

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 fiscal year ended January 31, 2016.
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 2017 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 are believed 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 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, net of tax, in other comprehensive income (loss), which is reflected as a component of stockholders’ equity. We determine any realized gains or losses on the sale of marketable securities on a specific identification method. In addition, we evaluate our securities to assess whether those with unrealized loss positions are other than temporarily impaired. Realized gains and losses and declines in value deemed to be other than temporary 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.
Revenue Recognition
We derive revenue from two sources: (1) product revenue which includes hardware and embedded software and (2) support revenue which includes customer support, hardware maintenance and software upgrades on a when-and-if-available basis.

Most of our arrangements, other than stand-alone renewals of maintenance and support agreements, are multiple-element arrangements with a combination of product and support related deliverables (as defined above). Under multiple-element arrangements, we allocate consideration at the inception of an arrangement to all deliverables based on the relative selling price method in accordance with the hierarchy provided by the multiple-element arrangement accounting guidance, which includes (i) vendor-specific objective evidence (“VSOE”), of selling price, if available; (ii) third-party evidence (“TPE”), of selling price, if VSOE is not available; and (iii) best estimate of selling price (“BESP”), if neither VSOE nor TPE is available. We determine VSOE based on our historical pricing and discounting practices for the specific products and services when sold separately. In determining VSOE, we require that a substantial majority of the stand-alone selling prices fall within a reasonably narrow pricing range. During the three months ended October 31, 2016, we established VSOE for support related deliverables as our stand-alone selling prices are now sufficiently concentrated based on an analysis of our historical data. As we have not established VSOE for any of our other deliverables and TPE cannot be obtained as our products contain a significant element of proprietary technology and our solutions offer substantially different features and functionality and hence are not comparable, we allocate consideration to all other deliverables based on BESP.
Recently Adopted Accounting Standard
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). We elected to early adopt this standard in the second quarter of fiscal 2017 with February 1, 2016 being the effective date of adoption. Under ASU 2016-09, excess tax benefits and deficiencies are recognized prospectively in our provision for income taxes rather than additional paid-in capital. As a result of the adoption, our provision for income taxes decreased by $921,000 during the nine months ended October 31, 2016. Additionally, we elected to account for forfeitures as they occur rather than estimate expected forfeiture using a modified retrospective transition method. Accordingly, we recorded a cumulative-effect adjustment of $2.1 million to accumulated deficit and an increase of stock-based compensation expense of $864,000 during the three months ended April 30, 2016. Finally, ASU 2016-09 requires excess tax benefits to be presented as a component of operating cash flows rather than financing cash flows. We elected to adopt this requirement prospectively and accordingly, prior periods have not been adjusted. Excess tax benefits were not material for all periods presented.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued 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, and thus, the new standard will be effective for us beginning on February 1, 2018 with early adoption permitted on or after February 1, 2017. This standard may be adopted using either the full or modified retrospective methods. We are currently evaluating adoption methods and the impact of this standard 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 October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 will be effective for us beginning on February 1, 2018 and will be applied on a modified retrospective basis. Early adoption is permitted. We do not expect the adoption of this standard to have any impact 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 are currently evaluating the impact of this standard on our consolidated financial statements.
Financial Instruments (Tables)
The following tables summarize our cash equivalents, marketable securities and restricted cash by significant investment categories as of January 31, 2016 and October 31, 2016 (in thousands):
 
 
As of January 31, 2016
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Cash Equivalents
 
Restricted Cash
Level 1
 

 
 

 
 

 
 

 
 

 
 

Money market funds
$
45,614

 
$

 
$

 
$
45,614

 
$
45,614

 
$

Level 2
 
 
 
 
 
 
 
 
 
 
 
Certificate of deposits
7,132

 

 

 
7,132

 

 
7,132

Total
$
52,746

 
$

 
$

 
$
52,746

 
$
45,614

 
$
7,132


 
As of October 31, 2016
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Cash Equivalents
 
Marketable
Securities
 
Restricted Cash
Level 1
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market accounts
$

 
$

 
$

 
$

 
$

 
$

 
$
12,734

Level 2
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government treasury notes
143,532

 
67

 
(27
)
 
143,572

 
14,949

 
128,623

 

U.S. government agencies
41,161

 
13

 
(55
)
 
41,119

 

 
41,119

 

Corporate debt securities
192,944

 
581

 
(110
)
 
193,415

 

 
193,415

 

Foreign government bonds
2,625

 
3

 

 
2,628

 

 
2,628

 

Total
$
380,262

 
$
664

 
$
(192
)
 
$
380,734

 
$
14,949

 
$
365,785

 
$
12,734

The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):
 
 
As of October 31, 2016
 
Amortized Cost
 
Fair Value
Due within one year
$
95,602

 
$
95,673

Due in one to five years
269,711

 
270,112

Total
$
365,313

 
$
365,785

The following table presents gross unrealized losses and fair values for those investments that were in a continuous unrealized loss position for less than 12 months as of October 31, 2016, aggregated by investment category (in thousands):
 
 
Less than 12 months
 
Fair
Value
 
Unrealized
Loss
U.S. government treasury notes
$
35,647

 
$
(27
)
U.S. government agencies
28,274

 
(55
)
Corporate debt securities
47,483

 
(110
)
Total
$
111,404

 
$
(192
)
Balance Sheet Components (Tables)
Property and equipment, net, consists of the following (in thousands):
 
 
As of
January 31, 2016
 
As of
October 31, 2016
Test equipment
$
65,663

 
$
103,491

Computer, equipment and software
31,388

 
50,235

Furniture and fixtures
2,852

 
4,072

Leasehold improvements
4,935

 
9,902

Total property and equipment
104,838

 
167,700

Less: accumulated depreciation and amortization
(52,209
)
 
(85,612
)
Property and equipment, net
$
52,629

 
$
82,088

Intangible assets, net, consist of the following (in thousands):
 
 
As of
January 31, 2016
 
As of
October 31, 2016
Technology patents
$
9,125

 
$
10,125

Accumulated amortization
(2,145
)
 
(3,189
)
Intangible assets, net
$
6,980

 
$
6,936

As of October 31, 2016, expected amortization expense for intangible assets for each of the next five years and thereafter is as follows (in thousands):
 
Fiscal Years Ending January 31,
Estimated 
Future
Amortization
Expense
Remainder of 2017
$
376

2018
1,504

2019
1,504

2020
1,504

2021
1,504

Thereafter
544

Total
$
6,936

Accrued expenses and other liabilities consist of the following (in thousands):
 
 
As of January 31, 2016
 
As of October 31, 2016
Sales and use tax payable
$
299

 
$
406

Accrued professional fees
3,044

 
3,256

Accrued marketing
2,684

 
6,908

Accrued travel and entertainment expenses
2,182

 
2,977

Income tax payable
1,791

 
974

Other accrued liabilities
4,076

 
6,024

Total accrued expenses and other liabilities
$
14,076

 
$
20,545

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, 2016
68,879,087

 
$
6.43

 
7.9
 
$
505,131

Options granted
1,999,000

 
12.69

 
 
 
 

Options exercised
(6,111,682
)
 
1.75

 
 
 
 

Options forfeited/cancelled
(2,196,344
)
 
11.67

 
 
 
 

Balance as of October 31, 2016
62,570,061

 
$
6.90

 
7.3
 
$
400,802

Vested and exercisable as of October 31, 2016
27,652,418

 
$
3.59

 
6.4
 
$
250,249

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
Unvested Balance as of January 31, 2016
53,000

 
$
16.98

Granted
8,906,750

 
13.36

Vested
(622,500
)
 
14.13

Forfeited
(309,878
)
 
13.69

Unvested Balance as of October 31, 2016
8,027,372

 
$
13.32

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,
 
2015
 
2016
 
2015
 
2016
Cost of revenue—product
$
43

 
$
138

 
$
139

 
$
425

Cost of revenue—support
657

 
1,178

 
1,511

 
3,982

Research and development
8,195

 
15,241

 
18,624

 
40,875

Sales and marketing
4,559

 
8,468

 
10,539

 
24,719

General and administrative
2,085

 
3,210

 
5,385

 
9,128

Total stock-based compensation expense
$
15,539

 
$
28,235

 
$
36,198

 
$
79,129

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,
 
2015
 
2016
 
2015
 
2016
Net loss
$
(56,501
)
 
$
(78,813
)
 
$
(169,458
)
 
$
(202,151
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
74,565

 
195,807

 
47,109

 
192,637

Net loss per share attributable to common stockholders, basic and diluted
$
(0.76
)
 
$
(0.40
)
 
$
(3.60
)
 
$
(1.05
)
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,
 
2015
 
2016
 
2015
 
2016
Stock options to purchase common stock
63,738

 
62,874

 
59,611

 
65,594

Restricted stock units

 
6,342

 

 
4,155

Early exercised stock options
3,318

 
2,246

 
3,849

 
2,451

Employee stock purchase plan

 
434

 

 
434

Total
67,056

 
71,896

 
63,460

 
72,634

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,
 
2015
 
2016
 
2015
 
2016
United States
$
105,615

 
$
152,134

 
$
229,892

 
$
385,464

Rest of the world
25,749

 
44,822

 
60,210

 
114,653

Total revenue
$
131,364

 
$
196,956

 
$
290,102

 
$
500,117

Long-lived assets by geographic area are summarized as follows (in thousands):
 
 
As of
January 31, 2016
 
As of
October 31, 2016
United States
$
50,501

 
$
78,952

Rest of the world
2,128

 
3,136

Total long-lived assets
$
52,629

 
$
82,088

Basis of Presentation and Summary of Significant Accounting Policies - Additional Information (Details) (USD $)
3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended
Oct. 31, 2016
Oct. 31, 2015
Oct. 31, 2016
source
Oct. 31, 2015
Jan. 31, 2016
Apr. 30, 2016
Accounting Standards Update 2016-09, Forfeiture Rate Component
New Accounting Pronouncement, Early Adoption, Effect
Oct. 31, 2016
Accounting Standards Update 2016-09, Forfeiture Rate Component
New Accounting Pronouncement, Early Adoption, Effect
Apr. 30, 2016
Accounting Standards Update 2016-09, Forfeiture Rate Component
Accumulated Deficit
New Accounting Pronouncement, Early Adoption, Effect
New Accounting Pronouncement, Early Adoption [Line Items]
 
 
 
 
 
 
 
 
Restricted cash
$ 12,734,000 
 
$ 12,734,000 
 
$ 7,132,000 
 
 
 
Deferred commissions, current
14,298,000 
 
14,298,000 
 
15,700,000 
 
 
 
Deferred income taxes, non-current
13,800,000 
 
13,800,000 
 
14,300,000 
 
 
 
Sales commission expenses
21,600,000 
16,500,000 
58,800,000 
38,600,000 
 
 
 
 
Number of revenue sources
 
 
 
 
 
 
 
Decrease in provision for income taxes
441,000 
751,000 
967,000 
965,000 
 
 
(921,000)
 
Cumulative-effect adjustment, new accounting standard
 
 
 
 
 
 
 
2,100,000 
Total stock-based compensation expense
$ 28,235,000 
$ 15,539,000 
$ 79,129,000 
$ 36,198,000 
 
$ 864,000 
 
 
Financial Instruments - Summary of Cash Equivalents, Marketable Securities and Restricted Cash by Significant Investment Categories (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2016
Jan. 31, 2016
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
$ 380,262 
$ 52,746 
Gross Unrealized Gains
664 
Gross Unrealized Losses
(192)
Fair Value
380,734 
52,746 
Cash Equivalents
14,949 
45,614 
Marketable Securities
365,785 
Restricted Cash
12,734 
7,132 
Money market funds |
Level 1
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
 
45,614 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
45,614 
Cash Equivalents
 
45,614 
Restricted Cash
 
Certificate of deposits |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
 
7,132 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
7,132 
Cash Equivalents
 
Restricted Cash
 
7,132 
Money market accounts |
Level 1
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Cash Equivalents
 
Marketable Securities
 
Restricted Cash
12,734 
 
U.S. government treasury notes |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
143,532 
 
Gross Unrealized Gains
67 
 
Gross Unrealized Losses
(27)
 
Fair Value
143,572 
 
Cash Equivalents
14,949 
 
Marketable Securities
128,623 
 
Restricted Cash
 
U.S. government agencies |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
41,161 
 
Gross Unrealized Gains
13 
 
Gross Unrealized Losses
(55)
 
Fair Value
41,119 
 
Cash Equivalents
 
Marketable Securities
41,119 
 
Restricted Cash
 
Corporate debt securities |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
192,944 
 
Gross Unrealized Gains
581 
 
Gross Unrealized Losses
(110)
 
Fair Value
193,415 
 
Cash Equivalents
 
Marketable Securities
193,415 
 
Restricted Cash
 
Foreign government bonds |
Level 2
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Amortized Cost
2,625 
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
2,628 
 
Cash Equivalents
 
Marketable Securities
2,628 
 
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, 2016
Available-for-sale Securities, Debt Maturities, Fair Value, Fiscal Year Maturity [Abstract]
 
Due within one year, Amortized Cost
$ 95,602 
Due in one to five years, Amortized Cost
269,711 
Total, Amortized Cost
365,313 
Due within one year, Fair Value
95,673 
Due in one to five years, Fair Value
270,112 
Total, Fair Value
$ 365,785 
Financial Instruments - Additional Information (Details) (USD $)
Oct. 31, 2016
Investments, Debt and Equity Securities [Abstract]
 
Securities in unrealized loss position for more than 12 months
$ 0 
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 9 Months Ended
Oct. 31, 2016
Oct. 31, 2016
Schedule Of Available For Sale Securities [Line Items]
 
 
Fair Value of Less Than 12 Months
$ 111,404 
$ 111,404 
Unrealized Losses of Less Than 12 Months
(192)
(192)
Gross realized gains, available-for-sale securities
65 
175 
U.S. government treasury notes
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Fair Value of Less Than 12 Months
35,647 
35,647 
Unrealized Losses of Less Than 12 Months
(27)
(27)
U.S. government agencies
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Fair Value of Less Than 12 Months
28,274 
28,274 
Unrealized Losses of Less Than 12 Months
(55)
(55)
Corporate debt securities
 
 
Schedule Of Available For Sale Securities [Line Items]
 
 
Fair Value of Less Than 12 Months
47,483 
47,483 
Unrealized Losses of Less Than 12 Months
$ (110)
$ (110)
Balance Sheet Components - Schedule of Property and Equipment, Net (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2016
Jan. 31, 2016
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
$ 167,700 
$ 104,838 
Less: accumulated depreciation and amortization
(85,612)
(52,209)
Property and equipment, net
82,088 
52,629 
Test equipment
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
103,491 
65,663 
Computer, equipment and software
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
50,235 
31,388 
Furniture and fixtures
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
4,072 
2,852 
Leasehold improvements
 
 
Property Plant And Equipment [Line Items]
 
 
Total property and equipment
$ 9,902 
$ 4,935 
Balance Sheet Components - Additional Information (Details) (USD $)
3 Months Ended 9 Months Ended
Oct. 31, 2016
Oct. 31, 2015
Oct. 31, 2016
Oct. 31, 2015
Balance Sheet Components Disclosure [Abstract]
 
 
 
 
Depreciation and amortization
$ 13,200,000 
$ 8,500,000 
$ 34,900,000 
$ 22,100,000 
Intangible assets amortization expense
$ 376,000 
$ 326,000 
$ 1,000,000 
$ 978,000 
Balance Sheet Components - Schedule of Intangible Assets, Net (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2016
Jan. 31, 2016
Finite Lived Intangible Assets [Line Items]
 
 
Intangible assets, net
$ 6,936 
$ 6,980 
Technology patents
 
 
Finite Lived Intangible Assets [Line Items]
 
 
Technology patents
10,125 
9,125 
Accumulated amortization
(3,189)
(2,145)
Intangible assets, net
$ 6,936 
$ 6,980 
Balance Sheet Components - Schedule of Expected Amortization Expenses for Intangible Assets (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2016
Jan. 31, 2016
Balance Sheet Components Disclosure [Abstract]
 
 
Remainder of 2017
$ 376 
 
2018
1,504 
 
2019
1,504 
 
2020
1,504 
 
2021
1,504 
 
Thereafter
544 
 
Intangible assets, net
$ 6,936 
$ 6,980 
Balance Sheet Components - Schedule of Accrued Expenses and Other Liabilities (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 31, 2016
Jan. 31, 2016
Balance Sheet Components Disclosure [Abstract]
 
 
Sales and use tax payable
$ 406 
$ 299 
Accrued professional fees
3,256 
3,044 
Accrued marketing
6,908 
2,684 
Accrued travel and entertainment expenses
2,977 
2,182 
Income tax payable
974 
1,791 
Other accrued liabilities
6,024 
4,076 
Total accrued expenses and other liabilities
$ 20,545 
$ 14,076 
Commitments and Contingencies - Additional Information (Details) (USD $)
In Millions, unless otherwise specified
0 Months Ended
Oct. 31, 2016
Jan. 31, 2016
Oct. 18, 2016
Dell
Oct. 31, 2016
Office Facility Leases
lease_agreement
Loss Contingencies [Line Items]
 
 
 
 
Number of lease agreements
 
 
 
Total operating lease obligations
 
 
 
$ 43.7 
Outstanding letters of credit
7.7 
7.1 
 
 
Litigation settlement payment
 
 
$ 30.0 
 
Stockholders' Equity - Additional Information (Details) (USD $)
Oct. 31, 2016
class
Jan. 31, 2016
Oct. 31, 2015
Class Of Stock [Line Items]
 
 
 
Preferred stock, shares authorized (in shares)
20,000,000 
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 
 
Common stock, par value per share (in dollars per share)
$ 0.0001 
$ 0.0001 
 
Common stock, shares issued (in shares)
199,678,000 
190,509,000 
 
Common stock, shares outstanding (in shares)
199,678,000 
190,509,000 
 
Class A Common Stock
 
 
 
Class Of Stock [Line Items]
 
 
 
Common stock, shares authorized (in shares)
2,000,000,000 
2,000,000,000 
 
Common stock, par value per share (in dollars per share)
$ 0.0001 
$ 0.0001 
 
Common stock, shares issued (in shares)
75,319,966 
28,769,000 
 
Common stock, shares outstanding (in shares)
75,320,000 
28,769,000 
 
Class B Common Stock
 
 
 
Class Of Stock [Line Items]
 
 
 
Common stock, shares authorized (in shares)
250,000,000 
250,000,000 
 
Common stock, par value per share (in dollars per share)
$ 0.0001 
$ 0.0001 
 
Common stock, shares issued (in shares)
124,358,000 
161,740,000 
 
Common stock, shares outstanding (in shares)
124,357,633 
161,740,000 
 
Equity Incentive Plans - Additional Information (Details) (USD $)
3 Months Ended 9 Months Ended 1 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 0 Months Ended 1 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended 1 Months Ended
Oct. 31, 2016
Oct. 31, 2015
Oct. 31, 2016
plan
Oct. 31, 2015
Nov. 30, 2016
Subsequent event
Oct. 31, 2016
Performance Shares
Oct. 31, 2015
Performance Shares
Oct. 31, 2016
Performance Shares
Oct. 31, 2015
Performance Shares
Oct. 31, 2016
Restricted Stock Units
Oct. 31, 2016
2015 Equity Incentive Plan
Oct. 31, 2016
2015 Equity Incentive Plan
Minimum
Oct. 31, 2016
2015 Equity Incentive Plan
Maximum
Mar. 16, 2016
2015 Employee Stock Purchase Plan
Aug. 31, 2015
2015 Employee Stock Purchase Plan
period
Oct. 31, 2016
2015 Employee Stock Purchase Plan
Oct. 31, 2015
2015 Employee Stock Purchase Plan
Oct. 31, 2016
2015 Employee Stock Purchase Plan
Oct. 31, 2015
2015 Employee Stock Purchase Plan
Oct. 31, 2016
Class A Common Stock
Oct. 31, 2016
Class A Common Stock
2015 Equity Incentive Plan
Aug. 31, 2015
Class A Common Stock
2015 Employee Stock Purchase Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of equity incentive plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares initially reserved for issuance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27,000,000 
 
Increase in shares reserved by percentage of capital stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.00% 
1.00% 
Purchase price as percentage of fair market value of common stock