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Note 1. 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.
Initial Public Offering
In October 2015, we completed our initial public offering (“IPO”) of Class A common stock, in which we sold 28,750,000 shares. The shares were sold at an initial public offering price of $17.00 per share for net proceeds of $459.4 million, after deducting underwriting discounts and commissions of $29.3 million but before deducting offering costs of $4.5 million of which $2.7 million are expected to be paid by the end of our fiscal year ending on January 31, 2016. Upon the closing of our IPO, all outstanding shares of our convertible preferred stock automatically converted into 122,280,679 shares of Class B common stock. Following the IPO, we have two classes of authorized common stock – Class A common stock and Class B common stock.
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Note 2. 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 prospectus (the Prospectus) filed pursuant to Rule 424(b) under the Securities Exchange Act of 1933, as amended, with the SEC on October 7, 2015.
The condensed consolidated balance sheet as of January 31, 2015, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP on an annual reporting basis.
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 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 2016 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-deliverable 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, 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 certificates of deposit related to our leases. As of January 31, 2015 and October 31, 2015, we had restricted cash of $4.6 million and $7.1 million, which was included in other long-term assets in the condensed consolidated balance sheets.
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, 2015 and October 31, 2015, we recorded short-term deferred commissions of $9.4 million and $13.6 million, and long-term deferred commissions of $7.5 million and $11.8 million, in other long-term assets in the condensed consolidated balance sheets. During the three and nine months ended October 31, 2014 and October 31, 2015, we recognized sales commission expenses of $11.7 million, $21.8 million, $16.5 million and $38.6 million, respectively.
Recent Accounting Pronouncement 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, 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.
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Note 3. Fair Value Measurements
We define fair value as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
|
· |
Level 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 |
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· |
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 money market funds within Level I because they are valued using quoted market prices. We classify our restricted cash within Level II because they are valued using 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.
The following tables set forth the fair value of our financial assets measured at fair value on a recurring basis as of January 31, 2015 and October 31, 2015 using the above input categories (in thousands):
|
|
January 31, 2015 |
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|||||||||||||
|
|
Level I |
|
|
Level II |
|
|
Level III |
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|
Total |
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||||
Financial Assets: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
190,621 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
190,621 |
|
Restricted cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
— |
|
|
|
4,648 |
|
|
|
— |
|
|
|
4,648 |
|
Total assets measured at fair value |
|
$ |
190,621 |
|
|
$ |
4,648 |
|
|
$ |
— |
|
|
$ |
195,269 |
|
|
|
October 31, 2015 |
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|||||||||||||
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
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||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
45,614 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
45,614 |
|
Restricted cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
— |
|
|
|
7,132 |
|
|
|
— |
|
|
|
7,132 |
|
Total assets measured at fair value |
|
$ |
45,614 |
|
|
$ |
7,132 |
|
|
$ |
— |
|
|
$ |
52,746 |
|
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Note 4. Balance Sheet Components
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
|
|
January 31, |
|
|
October 31, |
|
||
|
|
2015 |
|
|
2015 |
|
||
|
|
|
|
|
|
|
|
|
Test equipment |
|
$ |
37,059 |
|
|
$ |
58,359 |
|
Computer, equipment and software |
|
|
19,022 |
|
|
|
25,158 |
|
Furniture and fixtures |
|
|
2,460 |
|
|
|
2,587 |
|
Leasehold improvements |
|
|
3,776 |
|
|
|
4,579 |
|
Total property and equipment |
|
|
62,317 |
|
|
|
90,683 |
|
Less: accumulated depreciation and amortization |
|
|
(22,458 |
) |
|
|
(43,566 |
) |
Property and equipment, net |
|
$ |
39,859 |
|
|
$ |
47,117 |
|
Depreciation and amortization expense was $4.1 million and $8.5 million for the three months ended October 31, 2014 and October 31, 2015 and $9.2 million and $22.1 million for the nine months ended October 31, 2014 and October 31, 2015.
Intangible Assets, Net
Intangible assets, net consist of the following (in thousands):
|
|
January 31, 2015 |
|
|
October 31, 2015 |
|
||
|
|
|
|
|
|
|
|
|
Technology patents |
|
$ |
9,125 |
|
|
$ |
9,125 |
|
Accumulated amortization |
|
|
(841 |
) |
|
|
(1,819 |
) |
Intangible assets, net |
|
$ |
8,284 |
|
|
$ |
7,306 |
|
Intangible assets amortization expense was $306,000 and $326,000 for the three months ended October 31, 2014 and October 31, 2015 and $515,000 and $978,000 for the nine months ended October 31, 2014 and October 31, 2015. 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, 2015, expected amortization expense for intangible assets for each of the next five years and thereafter is as follows (in thousands):
Year Ending January 31, |
|
Estimated Future Amortization Expense |
|
|
Remainder of 2016 |
|
$ |
326 |
|
2017 |
|
|
1,304 |
|
2018 |
|
|
1,304 |
|
2019 |
|
|
1,304 |
|
2020 |
|
|
1,304 |
|
Thereafter |
|
|
1,764 |
|
Total |
|
$ |
7,306 |
|
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
|
|
January 31, |
|
|
October 31, |
|
||
|
|
2015 |
|
|
2015 |
|
||
|
|
|
|
|
|
|
|
|
Sales and use tax payable |
|
$ |
591 |
|
|
$ |
583 |
|
Accrued professional fees |
|
|
1,502 |
|
|
|
2,149 |
|
Accrued travel and entertainment expenses |
|
|
1,138 |
|
|
|
1,264 |
|
Income tax payable |
|
|
779 |
|
|
|
941 |
|
Other accrued liabilities |
|
|
2,096 |
|
|
|
6,786 |
|
Accrued deferred offering costs |
|
|
— |
|
|
|
2,717 |
|
Total accrued expenses and other liabilities |
|
$ |
6,106 |
|
|
$ |
14,440 |
|
|
Note 5. Commitments and Contingencies
Operating Leases
In August 2015, we entered into certain lease agreements for office facilities with total lease obligations of approximately $19.7 million with lease periods expiring through 2023. In connection with these leases, we are required to maintain letters of credit of up to $3.3 million.
Purchase Obligations
In July 2015 and in November 2015, we entered into non-cancelable contracts of $1.1 million and $6.1 million, respectively, related to certain software services payable through 2018.
Letters of Credit
As of January 31, 2015 and October 31, 2015, we had outstanding letters of credit in the aggregate amount of $4.6 million and $7.1 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 March 2023.
Legal Matters
On November 4, 2013, EMC Corporation, or EMC, filed a complaint against us, alleging that our hiring of EMC employees evidences a scheme to misappropriate EMC’s confidential information and trade secrets and to unlawfully interfere with EMC’s business relationships with its customers and contractual relationships with its employees. The complaint seeks damages and injunctive relief. On November 26, 2013, we answered and counterclaimed, denying EMC’s allegations and alleging that EMC surreptitiously obtained and tested our product in a manner that constituted misappropriation of our trade secrets, a breach of contract, breach of the covenant of good faith and fair dealing, unlawful interference with our contractual and business relationships as well as unfair competition and a violation of Massachusetts General Law 93A, Sections 2 and 11. On November 18, 2014, we amended our counterclaim, additionally alleging that EMC has engaged in commercial disparagement, violated the Lanham Act and engaged in defamation. Our counterclaim seeks damages and declaratory and injunctive relief. Fact discovery deadline has passed. Expert discovery is scheduled to conclude on March 18, 2016, and the deadline for filing dispositive motions is April 8, 2016. The district court has scheduled a trial date for October 17, 2016.
On November 26, 2013, EMC filed a complaint against us, alleging infringement of five patents held by EMC. The complaint seeks damages and injunctive and equitable relief. On January 17, 2014, we filed a response to the complaint, denying all claims and asserting that EMC’s patents are invalid. Discovery has concluded. Trial is currently scheduled for March 7, 2016.
We intend to defend these lawsuits vigorously. The outcome, including our liability, if any, with respect to this litigation, is uncertain. At present, we are unable to estimate a reasonably possible range of loss, if any, that may result from these matters. If an unfavorable outcome were to occur in this litigation, the impact could be material to our business, financial condition or results of operations.
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 condensed consolidated balance sheets as of January 31, 2015 and October 31, 2015.
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Note 6. Line of Credit
In August 2014, we entered into a two-year loan and security agreement with a financial institution to provide up to $15.0 million on a revolving line based on 80% of qualifying accounts receivable. Borrowings under this revolving line of credit bear interest at prime rate plus 1%. Interest expense is paid on a monthly basis based on the principle amount outstanding under the line of credit. The revolving line of credit matures in August 2016. Early termination is allowed but subject to a non-refundable termination fee of $150,000 if terminated on or after the first year from the effective date of the credit facility.
Borrowings under this line of credit are collateralized by substantially all of our assets, excluding any intellectual property. We are also required to comply with certain financial covenants, including a minimum quarterly revenue target, delivery of financial and other information, as well as limitations on dispositions, mergers, or consolidations and other corporate activities. The terms of our outstanding loan and security agreements also restrict our ability to pay dividends.
As of January 31, 2015 and October 31, 2015, we had no borrowings from this line of credit and we were in compliance with our financial covenants.
In September 2015, we entered into a non-binding engagement letter with Silicon Valley Bank for an additional credit facility pursuant to which Silicon Valley Bank would serve as the lead arranger of a syndicate of banks. In November 2015, the non-binding engagement letter was terminated.
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Note 7. Convertible Preferred Stock
Upon the closing of our IPO in October 2015, all shares of our then-outstanding convertible preferred stock automatically converted on a one-to-one basis into an aggregate of 122,280,679 shares of Class B common stock.
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Note 8. Stockholders’ Equity
Preferred Stock
Upon the closing of our 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, 2015, there were 20,000,000 shares of preferred stock authorized with a par value of $0.0001 per share, and no shares of preferred stock were 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, 2015, 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, 2015, 28,750,000 shares of Class A common stock were issued and outstanding and 161,229,673 shares of Class B common stock were issued and outstanding.
In August 2015, we established the Pure Good Foundation as a non-profit organization, and in September 2015 we issued 700,000 shares of our Class B common stock to this foundation. As a result, we incurred a one-time general and administrative expense of $11.9 million during the three months ended October 31, 2015, the amount of which was equal to the fair value of the shares of Class B common stock issued. We anticipate that the proposed programs of the Pure Good Foundation will include grants, humanitarian relief, volunteerism and social development projects. We believe that the Pure Good Foundation will foster employee morale, strengthen our community presence and provide increased brand visibility.
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Note 9. 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 in October 2015 and serves as the successor to our 2009 Plan. We have initially reserved 27,000,000 shares of our Class A common stock for issuance under our 2015 Plan. Our 2015 Plan provides for the issuance of incentive stock options to our employees and nonstatutory 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. No new awards will be issued under our 2009 Plan after the effective date of our 2015 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, and until any restricted stock awards become vested or are forfeited.
Our equity awards generally vest over a two to four year period and expire no later than ten years from the date of grant. As of October 31, 2015, 26,476,500 shares of our Class A common stock were reserved for future issuance under the 2015 Plan.
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 in October 2015. A total of 3,500,000 shares of Class A common stock was initially reserved for issuance under the 2015 ESPP. 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 and September of each year, and each offering period will consist of four six-month purchase periods. The initial offering period began in October 2015, and will end on September 15, 2017. 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. For the first offering period, the fair market value of our Class A common stock on the offering date was $17.00, the price at which our Class A common stock was first sold to the public in our IPO. As of October 31, 2015, 3,500,000 shares were reserved for future issuance under the 2015 ESPP.
Stock Options
A summary of 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, 2015 |
|
|
54,284,474 |
|
|
$ |
3.02 |
|
|
|
8.3 |
|
|
$ |
523,654 |
|
Options granted |
|
|
18,159,824 |
|
|
|
15.77 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(1,784,066 |
) |
|
|
2.64 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(1,730,681 |
) |
|
|
7.09 |
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2015 |
|
|
68,929,551 |
|
|
|
6.29 |
|
|
|
|
|
|
|
|
|
Vested and exercisable as of October 31, 2015 |
|
|
21,903,812 |
|
|
|
1.71 |
|
|
|
6.8 |
|
|
$ |
348,767 |
|
Vested and expected to vest as of October 31, 2015 |
|
|
66,851,238 |
|
|
|
6.22 |
|
|
|
8.1 |
|
|
$ |
763,519 |
|
As of October 31, 2015, total unrecognized employee compensation cost, net of estimated forfeitures, was $210.7 million, which is expected to be recognized over a weighted-average period of 3.85 years.
During the three and nine months ended October 31, 2014 and 2015, we granted options to purchase 90,000, 415,000 50,000 and 133,000 shares of common stock that vest upon satisfaction of a performance condition, respectively. For all the options that vest upon satisfaction of a performance condition, management determined it is probable that the performance condition will be satisfied and, accordingly, the related stock-based compensation expense of $407,000, $1.1 million, $797,000 and $1.8 million was recognized during the three and nine months ended October 31, 2014 and 2015, respectively.
2015 ESPP
During the three months ended October 31, 2015, we recognized $907,000 of stock-based compensation expense related to the 2015 ESPP. As of October 31, 2015, there was $25.9 million of unrecognized stock-based compensation expense related to our 2015 ESPP that is expected to be recognized over the remaining term of the initial offering period.
Determination of Fair Value
The fair value of shares to be purchased under ESPP is estimated on the grant date using the Black-Scholes option pricing model. This valuation model for stock-based compensation expense requires us to make assumptions and judgments about the variables used in the calculation including expected term, the expected volatility of the common stock, a risk-free interest rate and expected dividend yield.
We estimated the fair value of ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions:
|
|
Three Months Ended October 31, |
|
|
Nine Months Ended October 31, |
|
||||||||||
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
||||
Expected term (in years) |
|
|
— |
|
|
|
0.4 – 1.9 |
|
|
|
— |
|
|
|
0.4 – 1.9 |
|
Expected volatility |
|
|
— |
|
|
49 |
% |
|
|
— |
|
|
49 |
% |
||
Risk-free interest rate |
|
|
— |
|
|
0.1% - 0.7 |
% |
|
|
— |
|
|
0.1% - 0.7 |
% |
||
Dividend rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
The assumptions used in the Black-Scholes option pricing model were determined as follows.
Expected Term—The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumptions were determined based on the contractual lives of the ESPP purchase rights.
Expected Volatility—Since we do not have a substantive trading history of our common stock, the expected volatility was derived from the average historical stock volatilities of several public companies within the same industry that we consider to be comparable to our business over a period equivalent to the expected term of the ESPP purchase rights.
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the ESPP purchase rights.
Dividend Rate—We have never declared or paid any cash dividends and do not plan to pay cash dividends in the foreseeable future, and, therefore, use an expected dividend yield of zero.
Non-Employee Stock Option Awards
We granted non-employee stock options to purchase 22,500 shares of common stock during the three months ended October 31, 2015, and 7,500 and 22,500 shares of common stock during the nine months ended October 31, 2014 and 2015. No stock options were granted to non-employees during the three months ended October 31, 2014. We recognized stock-based compensation expense related to non-employee stock options of $483,000 and $93,000 for the three months ended October 31, 2014 and 2015 and $1.9 million and $975,000 for the nine months ended October 31, 2014 and 2015.
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, |
|
||||||||||
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
||||
Cost of revenue—product |
|
$ |
35 |
|
|
$ |
43 |
|
|
$ |
264 |
|
|
$ |
139 |
|
Cost of revenue—support |
|
|
159 |
|
|
|
657 |
|
|
|
1,057 |
|
|
|
1,511 |
|
Research and development |
|
|
3,399 |
|
|
|
8,195 |
|
|
|
18,546 |
|
|
|
18,624 |
|
Sales and marketing |
|
|
2,315 |
|
|
|
4,559 |
|
|
|
19,676 |
|
|
|
10,539 |
|
General and administrative |
|
|
823 |
|
|
|
2,085 |
|
|
|
5,331 |
|
|
|
5,385 |
|
Total stock-based compensation expense |
|
$ |
6,731 |
|
|
$ |
15,539 |
|
|
$ |
44,874 |
|
|
$ |
36,198 |
|
The stock-based compensation expense for the nine months ended October 31, 2014 included $27.6 million related to the repurchase of common stock in excess of fair value in connection with a tender offer.
|
Note 11. 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 income (loss) before income taxes and the provision for income taxes recorded was primarily attributable to the difference in foreign tax rates and creation of the US tax attributes that were subject to a full valuation allowance.
As of October 31, 2015, 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, 2015.
|
Note 12. 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, |
|
||||||||||
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
||||
United States |
|
$ |
39,574 |
|
|
$ |
105,615 |
|
|
$ |
84,844 |
|
|
$ |
229,892 |
|
Rest of the world |
|
|
9,615 |
|
|
|
25,749 |
|
|
|
23,757 |
|
|
|
60,210 |
|
Total revenue |
|
$ |
49,189 |
|
|
$ |
131,364 |
|
|
$ |
108,601 |
|
|
$ |
290,102 |
|
Long-lived assets by geographic area are summarized as follows (in thousands):
|
|
January 31, |
|
|
October 31, |
|
||
|
|
2015 |
|
|
2015 |
|
||
|
|
|
|
|
|
|
||
United States |
|
$ |
39,069 |
|
|
$ |
45,756 |
|
Rest of the world |
|
|
790 |
|
|
|
1,361 |
|
Total long-lived assets |
|
$ |
39,859 |
|
|
$ |
47,117 |
|
|
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 prospectus (the Prospectus) filed pursuant to Rule 424(b) under the Securities Exchange Act of 1933, as amended, with the SEC on October 7, 2015.
The condensed consolidated balance sheet as of January 31, 2015, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP on an annual reporting basis.
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 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 2016 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-deliverable 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, 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 certificates of deposit related to our leases. As of January 31, 2015 and October 31, 2015, we had restricted cash of $4.6 million and $7.1 million, which was included in other long-term assets in the condensed consolidated balance sheets.
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, 2015 and October 31, 2015, we recorded short-term deferred commissions of $9.4 million and $13.6 million, and long-term deferred commissions of $7.5 million and $11.8 million, in other long-term assets in the condensed consolidated balance sheets. During the three and nine months ended October 31, 2014 and October 31, 2015, we recognized sales commission expenses of $11.7 million, $21.8 million, $16.5 million and $38.6 million, respectively.
Recent Accounting Pronouncement 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, 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.
|
The following tables set forth the fair value of our financial assets measured at fair value on a recurring basis as of January 31, 2015 and October 31, 2015 using the above input categories (in thousands):
|
|
January 31, 2015 |
|
|||||||||||||
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
190,621 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
190,621 |
|
Restricted cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
— |
|
|
|
4,648 |
|
|
|
— |
|
|
|
4,648 |
|
Total assets measured at fair value |
|
$ |
190,621 |
|
|
$ |
4,648 |
|
|
$ |
— |
|
|
$ |
195,269 |
|
|
|
October 31, 2015 |
|
|||||||||||||
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
45,614 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
45,614 |
|
Restricted cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
— |
|
|
|
7,132 |
|
|
|
— |
|
|
|
7,132 |
|
Total assets measured at fair value |
|
$ |
45,614 |
|
|
$ |
7,132 |
|
|
$ |
— |
|
|
$ |
52,746 |
|
|
Property and equipment, net consists of the following (in thousands):
|
|
January 31, |
|
|
October 31, |
|
||
|
|
2015 |
|
|
2015 |
|
||
|
|
|
|
|
|
|
|
|
Test equipment |
|
$ |
37,059 |
|
|
$ |
58,359 |
|
Computer, equipment and software |
|
|
19,022 |
|
|
|
25,158 |
|
Furniture and fixtures |
|
|
2,460 |
|
|
|
2,587 |
|
Leasehold improvements |
|
|
3,776 |
|
|
|
4,579 |
|
Total property and equipment |
|
|
62,317 |
|
|
|
90,683 |
|
Less: accumulated depreciation and amortization |
|
|
(22,458 |
) |
|
|
(43,566 |
) |
Property and equipment, net |
|
$ |
39,859 |
|
|
$ |
47,117 |
|
Intangible assets, net consist of the following (in thousands):
|
|
January 31, 2015 |
|
|
October 31, 2015 |
|
||
|
|
|
|
|
|
|
|
|
Technology patents |
|
$ |
9,125 |
|
|
$ |
9,125 |
|
Accumulated amortization |
|
|
(841 |
) |
|
|
(1,819 |
) |
Intangible assets, net |
|
$ |
8,284 |
|
|
$ |
7,306 |
|
As of October 31, 2015, expected amortization expense for intangible assets for each of the next five years and thereafter is as follows (in thousands):
Year Ending January 31, |
|
Estimated Future Amortization Expense |
|
|
Remainder of 2016 |
|
$ |
326 |
|
2017 |
|
|
1,304 |
|
2018 |
|
|
1,304 |
|
2019 |
|
|
1,304 |
|
2020 |
|
|
1,304 |
|
Thereafter |
|
|
1,764 |
|
Total |
|
$ |
7,306 |
|
Accrued expenses and other liabilities consist of the following (in thousands):
|
|
January 31, |
|
|
October 31, |
|
||
|
|
2015 |
|
|
2015 |
|
||
|
|
|
|
|
|
|
|
|
Sales and use tax payable |
|
$ |
591 |
|
|
$ |
583 |
|
Accrued professional fees |
|
|
1,502 |
|
|
|
2,149 |
|
Accrued travel and entertainment expenses |
|
|
1,138 |
|
|
|
1,264 |
|
Income tax payable |
|
|
779 |
|
|
|
941 |
|
Other accrued liabilities |
|
|
2,096 |
|
|
|
6,786 |
|
Accrued deferred offering costs |
|
|
— |
|
|
|
2,717 |
|
Total accrued expenses and other liabilities |
|
$ |
6,106 |
|
|
$ |
14,440 |
|
|
A summary of 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, 2015 |
|
|
54,284,474 |
|
|
$ |
3.02 |
|
|
|
8.3 |
|
|
$ |
523,654 |
|
Options granted |
|
|
18,159,824 |
|
|
|
15.77 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(1,784,066 |
) |
|
|
2.64 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(1,730,681 |
) |
|
|
7.09 |
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2015 |
|
|
68,929,551 |
|
|
|
6.29 |
|
|
|
|
|
|
|
|
|
Vested and exercisable as of October 31, 2015 |
|
|
21,903,812 |
|
|
|
1.71 |
|
|
|
6.8 |
|
|
$ |
348,767 |
|
Vested and expected to vest as of October 31, 2015 |
|
|
66,851,238 |
|
|
|
6.22 |
|
|
|
8.1 |
|
|
$ |
763,519 |
|
We estimated the fair value of ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions:
|
|
Three Months Ended October 31, |
|
|
Nine Months Ended October 31, |
|
||||||||||
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
||||
Expected term (in years) |
|
|
— |
|
|
|
0.4 – 1.9 |
|
|
|
— |
|
|
|
0.4 – 1.9 |
|
Expected volatility |
|
|
— |
|
|
49 |
% |
|
|
— |
|
|
49 |
% |
||
Risk-free interest rate |
|
|
— |
|
|
0.1% - 0.7 |
% |
|
|
— |
|
|
0.1% - 0.7 |
% |
||
Dividend rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
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, |
|
||||||||||
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
||||
Cost of revenue—product |
|
$ |
35 |
|
|
$ |
43 |
|
|
$ |
264 |
|
|
$ |
139 |
|
Cost of revenue—support |
|
|
159 |
|
|
|
657 |
|
|
|
1,057 |
|
|
|
1,511 |
|
Research and development |
|
|
3,399 |
|
|
|
8,195 |
|
|
|
18,546 |
|
|
|
18,624 |
|
Sales and marketing |
|
|
2,315 |
|
|
|
4,559 |
|
|
|
19,676 |
|
|
|
10,539 |
|
General and administrative |
|
|
823 |
|
|
|
2,085 |
|
|
|
5,331 |
|
|
|
5,385 |
|
Total stock-based compensation expense |
|
$ |
6,731 |
|
|
$ |
15,539 |
|
|
$ |
44,874 |
|
|
$ |
36,198 |
|
|
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, |
|
||||||||||
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
||||
United States |
|
$ |
39,574 |
|
|
$ |
105,615 |
|
|
$ |
84,844 |
|
|
$ |
229,892 |
|
Rest of the world |
|
|
9,615 |
|
|
|
25,749 |
|
|
|
23,757 |
|
|
|
60,210 |
|
Total revenue |
|
$ |
49,189 |
|
|
$ |
131,364 |
|
|
$ |
108,601 |
|
|
$ |
290,102 |
|
Long-lived assets by geographic area are summarized as follows (in thousands):
|
|
January 31, |
|
|
October 31, |
|
||
|
|
2015 |
|
|
2015 |
|
||
|
|
|
|
|
|
|
||
United States |
|
$ |
39,069 |
|
|
$ |
45,756 |
|
Rest of the world |
|
|
790 |
|
|
|
1,361 |
|
Total long-lived assets |
|
$ |
39,859 |
|
|
$ |
47,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|