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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.
|
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 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-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 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 the letters of credit related to our leases. As of January 31, 2016 and April 30, 2016, we had restricted cash of $7.1 million and $6.4 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 April 30, 2016, we recorded deferred commissions, current, of $15.7 million and $12.1 million, and deferred commissions, non-current, of $14.3 million and $13.7 million, in other assets, non-current, in the condensed consolidated balance sheets. During the three months ended April 30, 2015 and 2016, we recognized sales commission expenses of $8.9 million, and $17.6 million, respectively.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), requiring an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 will supersede nearly all existing revenue recognition guidance under U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers, deferring the effective date for ASU 2014-09 by one year, 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 are effective for annual periods beginning after December 15, 2018, and interim periods therein 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 March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.
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Note 3. 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 April 30, 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 April 30, 2016 |
|
|||||||||||||||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Cash Equivalents |
|
|
Marketable Securities |
|
|
Restricted Cash |
|
|||||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government notes |
|
$ |
130,516 |
|
|
$ |
63 |
|
|
$ |
(6 |
) |
|
$ |
130,573 |
|
|
$ |
28,813 |
|
|
$ |
101,760 |
|
|
|
— |
|
U.S. government agencies |
|
|
31,969 |
|
|
|
21 |
|
|
|
(1 |
) |
|
|
31,989 |
|
|
|
— |
|
|
|
31,989 |
|
|
|
— |
|
Corporate debt securities |
|
|
184,677 |
|
|
|
752 |
|
|
|
(27 |
) |
|
|
185,402 |
|
|
|
— |
|
|
|
185,402 |
|
|
|
— |
|
Foreign government bonds |
|
|
1,743 |
|
|
|
5 |
|
|
|
— |
|
|
|
1,748 |
|
|
|
— |
|
|
|
1,748 |
|
|
|
— |
|
Money market accounts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,427 |
|
Total |
|
$ |
348,905 |
|
|
$ |
841 |
|
|
$ |
(34 |
) |
|
$ |
349,712 |
|
|
$ |
28,813 |
|
|
$ |
320,899 |
|
|
$ |
6,427 |
|
The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):
|
|
As of April 30, 2016 |
|
|||||
|
|
Amortized Cost |
|
|
Fair Value |
|
||
Due within one year |
|
$ |
64,414 |
|
|
$ |
64,456 |
|
Due in one to five years |
|
|
255,678 |
|
|
|
256,443 |
|
Total |
|
$ |
320,092 |
|
|
$ |
320,899 |
|
As of April 30, 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 April 30, 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 April 30, 2016, aggregated by investment category (in thousands):
|
|
Less than 12 months |
|
|||||
|
|
Fair Value |
|
|
Unrealized Loss |
|
||
U.S. government notes |
|
$ |
28,883 |
|
|
$ |
(6 |
) |
U.S. government agencies |
|
|
2,995 |
|
|
|
(1 |
) |
Corporate debt securities |
|
|
25,213 |
|
|
|
(27 |
) |
Total |
|
$ |
57,091 |
|
|
$ |
(34 |
) |
Gross realized gains or losses from sales of cash equivalents and marketable securities for the three months ended April 30, 2016 were not significant.
|
Note 4. Balance Sheet Components
Property and Equipment, Net
Property and equipment, net, consists of the following (in thousands):
|
|
As of January 31, 2016 |
|
|
As of April 30, 2016 |
|
||
Test equipment |
|
$ |
65,663 |
|
|
$ |
83,384 |
|
Computer, equipment and software |
|
|
31,388 |
|
|
|
40,442 |
|
Furniture and fixtures |
|
|
2,852 |
|
|
|
3,532 |
|
Leasehold improvements |
|
|
4,935 |
|
|
|
6,055 |
|
Total property and equipment |
|
|
104,838 |
|
|
|
133,413 |
|
Less: accumulated depreciation and amortization |
|
|
(52,209 |
) |
|
|
(62,158 |
) |
Property and equipment, net |
|
$ |
52,629 |
|
|
$ |
71,255 |
|
Depreciation and amortization expense was $6.2 million and $10.1 million for the three months ended April 30, 2015 and 2016, respectively.
Intangible Assets, Net
Intangible assets, net, consist of the following (in thousands):
|
|
As of January 31, 2016 |
|
|
As of April 30, 2016 |
|
||
Technology patents |
|
$ |
9,125 |
|
|
$ |
9,125 |
|
Accumulated amortization |
|
|
(2,145 |
) |
|
|
(2,471 |
) |
Intangible assets, net |
|
$ |
6,980 |
|
|
$ |
6,654 |
|
Intangible assets amortization expense was $326,000 for the three months ended April 30, 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 April 30, 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 |
|
$ |
978 |
|
2018 |
|
|
1,304 |
|
2019 |
|
|
1,304 |
|
2020 |
|
|
1,304 |
|
2021 |
|
|
1,304 |
|
Thereafter |
|
|
460 |
|
Total |
|
$ |
6,654 |
|
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
|
|
As of January 31, 2016 |
|
|
As of April 30, 2016 |
|
||
Sales and use tax payable |
|
$ |
299 |
|
|
$ |
151 |
|
Accrued professional fees |
|
|
3,044 |
|
|
|
2,777 |
|
Accrued marketing |
|
|
2,684 |
|
|
|
3,804 |
|
Accrued travel and entertainment expenses |
|
|
2,182 |
|
|
|
2,458 |
|
Income tax payable |
|
|
1,791 |
|
|
|
1,292 |
|
Other accrued liabilities |
|
|
4,076 |
|
|
|
5,488 |
|
Total accrued expenses and other liabilities |
|
$ |
14,076 |
|
|
$ |
15,970 |
|
|
Note 5. Commitments and Contingencies
Operating Leases
During the three months ended April 30, 2016, we entered into three lease agreements for office facilities with total lease obligations of approximately $10.5 million with lease periods expiring through June 2021.
Letters of Credit
As of January 31, 2016 and April 30, 2016, we had outstanding letters of credit in the aggregate amount of $7.1 million and $6.4 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 March 2023.
Legal Matters
On November 4, 2013, EMC filed a complaint against us in the U.S. District Court for the District of Massachusetts, 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 and expert discovery has closed. Dispositive motions were filed in May 2016. The District Court has scheduled a trial date for October 24, 2016.
In a separate litigation matter, on November 26, 2013, EMC filed a complaint against us in the U.S. District Court for the District of Delaware, alleging infringement of five patents held by EMC. The five patents are U.S. Patent 6,904,556 entitled “Systems and Methods Which Utilize Parity Sets,” U.S. Patent 6,915,475 entitled “Data Integrity Management for Data Storage Systems,” U.S. Patent 7,373,464 entitled “Efficient Data Storage System” and the related U.S. Patent 7,434,015 entitled “Efficient Data Storage System” and U.S. Patent 8,375,187 entitled “I/O Scheduling For Flash Drives.” The complaint seeks damages and injunctive and equitable relief, with respect to the FlashArray 400-Series and predecessor products. Prior to trial, EMC dropped U.S. Patent No. 6,915,475 from the suit, and the District Court found, in a summary judgment ruling, that we did not infringe U.S. Patent No. 8,375,187 and did infringe certain claims of U.S. Patent No. 7,434,015, (’015 patent). The remaining two patents and the validity of ‘015 patent went to trial.
On March 15, 2016, the jury returned a verdict finding that we did not infringe U.S. Patent Nos. 6,904,556 and 7,373,464, and that the ‘015 patent, which the District Court ruled us to have infringed, is valid. The jury awarded EMC $14.0 million in royalty damages for infringement of the '015 patent. The jury declined to award any lost profit damages. On March 21, 2016, EMC filed an additional complaint for infringement of the '015 patent with respect to the FlashArray//m product, which EMC did not seek permission from the District Court to add to the lawsuit when FlashArray//m was launched in June of 2015. This new complaint seeks damages and injunctive and equitable relief based on the District Court's previous ruling with respect to the '015 patent. The infringement ruling represents a reasonably possible loss contingency under the applicable accounting standards of up to $14.0 million. We believe there are strong grounds to challenge the infringement ruling by the District Court and the validity finding by the jury, with respect to the ‘015 patent. We have challenged the findings with respect to the ‘015 patent in post-trial motions before the District Court and, if necessary, will appeal to the U.S. Court of Appeals for the Federal Circuit. At present, we do not believe it is probable that a loss has been incurred. As a result, we have not recorded any loss contingency on our consolidated balance sheet as of April 30, 2016.
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 April 30, 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.
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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 principal amount outstanding under the line of credit.
As of January 31, 2016, we had no borrowings from this line of credit and we were in compliance with our financial covenants. In April 2016, we early terminated this line of credit.
|
Note 7. 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 April 30, 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 April 30, 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 April 30, 2016, 66,438,448 shares of Class A common stock were issued and outstanding and 127,685,960 shares of Class B common stock were issued and outstanding.
|
Note 8. 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,-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, and until any restricted stock awards become vested or are forfeited.
We have 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 will increase 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 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. 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.
Additionally, in accordance with our 2015 ESPP, 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 terminates immediately following the purchase of ESPP shares on the purchase date immediately preceding the new offering and participants in the terminated ongoing offering will automatically be enrolled in the new offering (ESPP reset). As the closing stock price on the new offering date of March 16, 2016 was lower than the closing stock price on the initial offering date of October 7, 2015, the initial offering period ended on March 15, 2016 and an ESPP reset was triggered. This reset resulted in a modification charge of approximately $10.3 million, net of estimated forfeiture, which will be recognized over the new 24-month offering period.
During the three months ended April 30, 2016, we recognized $4.2 million of stock-based compensation expense related to our 2015 ESPP. As of April 30, 2016, there was $28.7 million of unrecognized stock-based compensation expense, net of estimated forfeiture related to our 2015 ESPP that is expected to be recognized over the term of the related offering periods.
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, 2016 |
|
|
68,879,087 |
|
|
$ |
6.43 |
|
|
|
7.9 |
|
|
$ |
505,131 |
|
Options granted |
|
|
1,891,000 |
|
|
|
12.75 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(2,181,055 |
) |
|
|
1.40 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(691,251 |
) |
|
|
11.27 |
|
|
|
|
|
|
|
|
|
Balance as of April 30, 2016 |
|
|
67,897,781 |
|
|
$ |
6.72 |
|
|
7.7 |
|
|
$ |
562,758 |
|
|
Vested and exercisable as of April 30, 2016 |
|
|
25,495,004 |
|
|
$ |
2.64 |
|
|
6.6 |
|
|
$ |
304,484 |
|
|
Vested and expected to vest as of April 30, 2016 |
|
|
65,641,943 |
|
|
$ |
6.64 |
|
|
7.7 |
|
|
$ |
549,018 |
|
The aggregate intrinsic value of options vested and exercisable and vested and expected to vest as of April 30, 2016 is calculated based on the difference between the exercise price and the closing price of $14.55 of our Class A common stock on April 29, 2016.
As of April 30, 2016, total unrecognized employee compensation cost, net of estimated forfeitures, was $179.1 million, which is expected to be recognized over a weighted-average period of approximately 3.5 years. To the extent the actual forfeiture rate is different from what we have estimated, stock-based compensation related to these awards will be different from our expectations.
During the three months ended April 30, 2015 and 2016, we granted options to purchase 83,000 and 780,000 shares of common stock, respectively, net of cancellations that vest upon satisfaction of a performance condition. For those options that management determined that it is probable that the performance condition will be satisfied, stock-based compensation expense of $440,000 and $549,000 was recognized during the three months ended April 30, 2015 and 2016 respectively.
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 |
|
|
4,334,600 |
|
|
|
14.27 |
|
Vested |
|
|
— |
|
|
|
— |
|
Forfeited / cancelled |
|
|
(10,500 |
) |
|
|
13.91 |
|
Unvested balance as of April 30, 2016 |
|
|
4,377,100 |
|
|
$ |
14.30 |
|
Expected to vest as of April 30, 2016 |
|
|
4,144,238 |
|
|
$ |
14.30 |
|
As of April 30, 2016, total unrecognized employee compensation cost, net of estimated forfeitures, related to outstanding restricted stock units was $57.5 million, which is expected to be recognized over a weighted-average period of approximately 2.9 years. To the extent the actual forfeiture rate is different from what we have estimated, stock-based compensation related to these awards will be different from our expectations.
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 April 30, |
|
|||||
|
|
2015 |
|
|
2016 |
|
||
Cost of revenue—product |
|
$ |
56 |
|
|
$ |
102 |
|
Cost of revenue—support |
|
|
333 |
|
|
|
1,051 |
|
Research and development |
|
|
3,625 |
|
|
|
11,220 |
|
Sales and marketing |
|
|
3,444 |
|
|
|
7,237 |
|
General and administrative |
|
|
1,401 |
|
|
|
2,524 |
|
Total stock-based compensation expense |
|
$ |
8,859 |
|
|
$ |
22,134 |
|
|
Note 10. 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 April 30, 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.
|
Note 11. 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, unaudited):
|
|
Three Months Ended April 30, |
|
|||||
|
|
2015 |
|
|
2016 |
|
||
United States |
|
$ |
58,674 |
|
|
$ |
111,227 |
|
Rest of the world |
|
|
15,403 |
|
|
|
28,720 |
|
Total revenue |
|
$ |
74,077 |
|
|
$ |
139,947 |
|
Long-lived assets by geographic area are summarized as follows (in thousands, unaudited):
|
|
As of January 31, 2016 |
|
|
As of April 30, 2016 |
|
||
United States |
|
$ |
50,501 |
|
|
$ |
68,058 |
|
Rest of the world |
|
|
2,128 |
|
|
|
3,197 |
|
Total long-lived assets |
|
$ |
52,629 |
|
|
$ |
71,255 |
|
|
|
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-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 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 the letters of credit related to our leases. As of January 31, 2016 and April 30, 2016, we had restricted cash of $7.1 million and $6.4 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 April 30, 2016, we recorded deferred commissions, current, of $15.7 million and $12.1 million, and deferred commissions, non-current, of $14.3 million and $13.7 million, in other assets, non-current, in the condensed consolidated balance sheets. During the three months ended April 30, 2015 and 2016, we recognized sales commission expenses of $8.9 million, and $17.6 million, respectively.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), requiring an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 will supersede nearly all existing revenue recognition guidance under U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers, deferring the effective date for ASU 2014-09 by one year, 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 are effective for annual periods beginning after December 15, 2018, and interim periods therein 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 March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.
|
The following tables summarize our cash equivalents, marketable securities and restricted cash by significant investment categories as of January 31, 2016 and April 30, 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 April 30, 2016 |
|
|||||||||||||||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Cash Equivalents |
|
|
Marketable Securities |
|
|
Restricted Cash |
|
|||||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government notes |
|
$ |
130,516 |
|
|
$ |
63 |
|
|
$ |
(6 |
) |
|
$ |
130,573 |
|
|
$ |
28,813 |
|
|
$ |
101,760 |
|
|
|
— |
|
U.S. government agencies |
|
|
31,969 |
|
|
|
21 |
|
|
|
(1 |
) |
|
|
31,989 |
|
|
|
— |
|
|
|
31,989 |
|
|
|
— |
|
Corporate debt securities |
|
|
184,677 |
|
|
|
752 |
|
|
|
(27 |
) |
|
|
185,402 |
|
|
|
— |
|
|
|
185,402 |
|
|
|
— |
|
Foreign government bonds |
|
|
1,743 |
|
|
|
5 |
|
|
|
— |
|
|
|
1,748 |
|
|
|
— |
|
|
|
1,748 |
|
|
|
— |
|
Money market accounts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,427 |
|
Total |
|
$ |
348,905 |
|
|
$ |
841 |
|
|
$ |
(34 |
) |
|
$ |
349,712 |
|
|
$ |
28,813 |
|
|
$ |
320,899 |
|
|
$ |
6,427 |
|
The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):
|
|
As of April 30, 2016 |
|
|||||
|
|
Amortized Cost |
|
|
Fair Value |
|
||
Due within one year |
|
$ |
64,414 |
|
|
$ |
64,456 |
|
Due in one to five years |
|
|
255,678 |
|
|
|
256,443 |
|
Total |
|
$ |
320,092 |
|
|
$ |
320,899 |
|
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 April 30, 2016, aggregated by investment category (in thousands):
|
|
Less than 12 months |
|
|||||
|
|
Fair Value |
|
|
Unrealized Loss |
|
||
U.S. government notes |
|
$ |
28,883 |
|
|
$ |
(6 |
) |
U.S. government agencies |
|
|
2,995 |
|
|
|
(1 |
) |
Corporate debt securities |
|
|
25,213 |
|
|
|
(27 |
) |
Total |
|
$ |
57,091 |
|
|
$ |
(34 |
) |
|
Property and equipment, net, consists of the following (in thousands):
|
|
As of January 31, 2016 |
|
|
As of April 30, 2016 |
|
||
Test equipment |
|
$ |
65,663 |
|
|
$ |
83,384 |
|
Computer, equipment and software |
|
|
31,388 |
|
|
|
40,442 |
|
Furniture and fixtures |
|
|
2,852 |
|
|
|
3,532 |
|
Leasehold improvements |
|
|
4,935 |
|
|
|
6,055 |
|
Total property and equipment |
|
|
104,838 |
|
|
|
133,413 |
|
Less: accumulated depreciation and amortization |
|
|
(52,209 |
) |
|
|
(62,158 |
) |
Property and equipment, net |
|
$ |
52,629 |
|
|
$ |
71,255 |
|
Intangible assets, net, consist of the following (in thousands):
|
|
As of January 31, 2016 |
|
|
As of April 30, 2016 |
|
||
Technology patents |
|
$ |
9,125 |
|
|
$ |
9,125 |
|
Accumulated amortization |
|
|
(2,145 |
) |
|
|
(2,471 |
) |
Intangible assets, net |
|
$ |
6,980 |
|
|
$ |
6,654 |
|
As of April 30, 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 |
|
$ |
978 |
|
2018 |
|
|
1,304 |
|
2019 |
|
|
1,304 |
|
2020 |
|
|
1,304 |
|
2021 |
|
|
1,304 |
|
Thereafter |
|
|
460 |
|
Total |
|
$ |
6,654 |
|
Accrued expenses and other liabilities consist of the following (in thousands):
|
|
As of January 31, 2016 |
|
|
As of April 30, 2016 |
|
||
Sales and use tax payable |
|
$ |
299 |
|
|
$ |
151 |
|
Accrued professional fees |
|
|
3,044 |
|
|
|
2,777 |
|
Accrued marketing |
|
|
2,684 |
|
|
|
3,804 |
|
Accrued travel and entertainment expenses |
|
|
2,182 |
|
|
|
2,458 |
|
Income tax payable |
|
|
1,791 |
|
|
|
1,292 |
|
Other accrued liabilities |
|
|
4,076 |
|
|
|
5,488 |
|
Total accrued expenses and other liabilities |
|
$ |
14,076 |
|
|
$ |
15,970 |
|
|
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, 2016 |
|
|
68,879,087 |
|
|
$ |
6.43 |
|
|
|
7.9 |
|
|
$ |
505,131 |
|
Options granted |
|
|
1,891,000 |
|
|
|
12.75 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(2,181,055 |
) |
|
|
1.40 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(691,251 |
) |
|
|
11.27 |
|
|
|
|
|
|
|
|
|
Balance as of April 30, 2016 |
|
|
67,897,781 |
|
|
$ |
6.72 |
|
|
7.7 |
|
|
$ |
562,758 |
|
|
Vested and exercisable as of April 30, 2016 |
|
|
25,495,004 |
|
|
$ |
2.64 |
|
|
6.6 |
|
|
$ |
304,484 |
|
|
Vested and expected to vest as of April 30, 2016 |
|
|
65,641,943 |
|
|
$ |
6.64 |
|
|
7.7 |
|
|
$ |
549,018 |
|
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 |
|
|
4,334,600 |
|
|
|
14.27 |
|
Vested |
|
|
— |
|
|
|
— |
|
Forfeited / cancelled |
|
|
(10,500 |
) |
|
|
13.91 |
|
Unvested balance as of April 30, 2016 |
|
|
4,377,100 |
|
|
$ |
14.30 |
|
Expected to vest as of April 30, 2016 |
|
|
4,144,238 |
|
|
$ |
14.30 |
|
The following table summarizes the components of stock-based compensation expense recognized in the condensed consolidated statements of operations (in thousands):
|
|
Three Months Ended April 30, |
|
|||||
|
|
2015 |
|
|
2016 |
|
||
Cost of revenue—product |
|
$ |
56 |
|
|
$ |
102 |
|
Cost of revenue—support |
|
|
333 |
|
|
|
1,051 |
|
Research and development |
|
|
3,625 |
|
|
|
11,220 |
|
Sales and marketing |
|
|
3,444 |
|
|
|
7,237 |
|
General and administrative |
|
|
1,401 |
|
|
|
2,524 |
|
Total stock-based compensation expense |
|
$ |
8,859 |
|
|
$ |
22,134 |
|
|
The following table sets forth revenue by geographic area based on the billing address of our customers (in thousands, unaudited):
|
|
Three Months Ended April 30, |
|
|||||
|
|
2015 |
|
|
2016 |
|
||
United States |
|
$ |
58,674 |
|
|
$ |
111,227 |
|
Rest of the world |
|
|
15,403 |
|
|
|
28,720 |
|
Total revenue |
|
$ |
74,077 |
|
|
$ |
139,947 |
|
Long-lived assets by geographic area are summarized as follows (in thousands, unaudited):
|
|
As of January 31, 2016 |
|
|
As of April 30, 2016 |
|
||
United States |
|
$ |
50,501 |
|
|
$ |
68,058 |
|
Rest of the world |
|
|
2,128 |
|
|
|
3,197 |
|
Total long-lived assets |
|
$ |
52,629 |
|
|
$ |
71,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|