UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 20182021
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                      TO
Commission File Number 001-37570
Pure Storage, Inc.
(Exact Name of Registrant as Specified in its Charter)

Delaware27-1069557
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
650 Castro Street, Suite 400
Mountain View, California 94041
(Address of principal executive offices, including zip code)
(800) 379-7873
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Class A Common Stock, par value $0.0001 per sharePSTGNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   YES  Yes  x    NO      No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    YES  Yes  ¨   NO    No  x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YES  Yes  x    NO      No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES  Yes  x   NO     No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitiondefinitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”,company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerxAccelerated filer¨
Non-accelerated filer
¨(Do not check if a small reporting company)
Small reporting company¨☐
Emerging growth company¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨   NO  Yes  ☐   No  x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of July 31, 2017,August 2, 2020, the last business day of the registrant's most recently completed second quarter, was approximately $1.6$4.4 billion based upon the closing price reported for such date by the New York Stock Exchange. Shares of the registrant's Class A and Class B common stock held by each executive officer, director and holder of 10% or more of the outstanding Class A and Class B common stock have been excluded from this calculation because such persons may be deemed affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for any other purpose.
As of March 20, 2018,18, 2021, the registrant had 162,727,090280,335,794 shares of Class A common stock and 66,511,236 shares of Class B common stock outstanding.
Documents Incorporated by Reference
Portions of the registrant’s proxy statement for its 2018 annual meeting2021 Annual Meeting of stockholdersStockholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended January 31, 2018.
2021.



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Table of Contents
 
Page
3
4
PART I
Item 1.
5
Item 1A.
912
Item 1B.
2731
Item 2.
2731
Item 3.
2831
Item 4.
2832
PART II
Item 5.
2933
Item 6.
3135
Item 7.
3337
Item 7A.
4853
Item 8.
5054
Item 9.
7892
Item 9A.
7892
Item 9B.
7892
PART III
Item 10.
7993
Item 11.
7993
Item 12.
7993
Item 13.
7993
Item 14.
7993
PART IV
Item 15.
8094
Item 16.
96




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NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “project,” “should,” “will” or the negative of these terms or other similar expressions.
Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements regarding our ability to sustain or manage our expansiongrowth and growth,profitability, our expectations regarding demand for our products and services and trends in the external storage market, our expectations that average sales prices may decrease or fluctuate over time, our plans to expand and continue to invest internationally, our plans to expand thecontinue investing in marketing, sales, support and research and development, organization as well as theour ability to grow sales with new and marketing function and channel programs,existing customers, our shift to subscription services, including as-a-Service offerings, our expectations regarding fluctuations in our revenue and operating results, our expectations that we may continue to experience losses despite significant revenue growth, our ability to successfully attract, motivate, and retain qualified personnel and maintain our culture, our expectations regarding our technological leadership and market opportunity, our ability to realize benefits from our investments, including development efforts and acquisitions, our ability to innovate and introduce new or enhanced products, our expectations regarding product acceptance and our technologies, products and solutions, our competitive position and the effects of competition and industry dynamics, including those of retrofitted or new productsalternative offerings from incumbent, vendors, hyperconverged products, defined as server computeemerging and storage combined within a single chassis, or public cloud vendors, our expectations concerning relationships with third parties, including our partners, customers and customers,contract manufacturers, the benefits of the Portworx acquisition and technology, the adequacy of our intellectual property rights, and expectations concerning pendingpotential legal proceedings and related costs.costs, the impact of adverse economic conditions and the duration and scope of the COVID-19 pandemic and related "shelter-in-place" orders and other measures and its impact on our business, operating results, cash flows and/or financial condition.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors.” These risks are not exhaustive. Other sections of this report include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
Investors should not rely upon forward-looking statements as predictions of future events. We cannot assure investors that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. Investors should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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WHERE INVESTORS CAN FIND MORE INFORMATION
 
Investors should note that we announce material financial information to our investors using our investor relations website, press releases, Securities and Exchange Commission (SEC) filings and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about the company, our products, our planned financial and other announcements and attendance at upcoming investor and industry conferences, and other matters and for complying with our disclosure obligations under Regulation FD:
Pure Storage Twitter Account (twitter.com/PureStorage)
Pure Storage Company Blog (blog.purestorage.com)
Pure Storage Facebook Page (facebook.com/PureStorage)
Pure Storage LinkedIn Page (linkedin.com/company/pure-storage)
The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts and our company blog, in addition to following our press releases, public conference calls and webcasts, and filings with the SEC. This list may be updated from time to time. The information we post through these channels is not a part of this Annual Report on Form 10-K. These channels may be updated from time to time on Pure Storage's investor relations website.




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PART I
Item 1. Business.
 
Overview
We empower innovatorsData is foundational to build a better world with data. As the demand for dataour customers' digital transformation and the need for real-time analytics increase, we are focused on delivering software-defined all-flashinnovative and disruptive technology and data storage solutions that are uniquely fast and cloud-capable for customers, enablingenable customers to maximize the value of their data. In our first decade, we completely changed customers' expectations of what they should see from storage arrays and storage vendors, making flash storage widely available to enterprise organizations and revolutionizing the customer experience with our Evergreen Storage subscription model that radically simplified and reduced total cost of storage ownership. Today, we are changing the expectations for data gain competitive advantage and keep pacestorage management by providing customers a cloud experience with cutting edge developments. flexible on-demand data services consumption through delivery of a Modern Data Experience that empowers organizations to run their operations as a true, automated, storage as-a-service model seamlessly across multiple clouds.
Our solutions support a wide range of structured and unstructured data, at scale and across any data workloads on-premise, in the cloud, or hybrid environments, and include mission-critical production, test/development, analytics, disaster recovery, and backup/recovery.
Our Modern Data Experience vision begins with our portfolio of products and subscription services that is transforming and modernizing storage operations for our customers. Our Modern Data Experience vision extends to an innovative and highly-integrated data platform replaces storage systems designed for mechanical disk with all-flash systems optimized end-to-end for solid-state memory. Our Pure1 cloud-based supportof products and management platform, powered by our META AI Engine dramatically simplifies storage administration, while real-time scanning enables us to find and fix issues before they have an impact. Our innovative business model replaces the traditional forklift upgrade cycle with an Evergreen Storage modelsubscription services, consisting ofCloud Data Infrastructure (integrated hardware and software innovation, supportappliances which run in on-premise data centers), Cloud Data Services (software services which run natively in major public cloud infrastructures), and maintenance.Cloud Data Management (software hosted data management services to manage our entire platform). The Modern Data Experience is based on four key pillars: Fast Matters, Cloud Everywhere, Simple is Smart, and Subscription to Innovation.
Fast Matters - Speed is critical to customer experience and engagement, and therefore, we design our high-performance solutions to allow applications, analytics, and development to move and execute quickly in order for our customers to make impactful decisions. We were incorporated in October 2009redefine fast by delivering low-latency, high bandwidth, and are headquartered in Mountain View, California, with operations throughoutmaximum density technologies. For example, accelerating core applications enables rapid response and deployment which reduces costs while increasing enterprise resilience.
Cloud Everywhere - Providing our customers the world. Our primary offerings include our FlashArrayopportunity to transform their data management to a full or hybrid cloud model. This model reduces costs and FlashBlade products, inclusive of our Purity Operating Environment (Purity OE) software, our Pure1 cloud-based management and support software, and FlashStack, our joint converged infrastructure solution with Cisco. We have experienced substantial growth over the past three years; our revenue was $440.3 million, $728.0 million, and $1,023.0 million for the years ended January 31, 2016, 2017 and 2018, respectively. As of January 31, 2018, we had over 2,100 employees globally.
Since launching in May 2012, our customer base has grown to over 4,500 customers, including over 30% of the Fortune 500. Our customers include large and mid-size organizations acrossadds agility through an API-defined platform, a diverse set of industry verticals, including cloud-based software and service providers, consumer web, education, energy, financial services, governments, healthcare, manufacturing, media, retail and telecommunications. Our data platform is used for a broad set of use cases, including database applications, large-scale analytics, artificial intelligence and machine learning, privateconsistent on-premise and public cloud infrastructureexperience, seamless data mobility and webscale applications, virtual server infrastructurecomprehensive data protection. This multi-cloud environment delivers increased flexibility, fast global recovery, and virtual desktop infrastructure.minimized application downtime through automated response.
Simple is Smart - From day one, our storage solutions are designed to be simple, allowing our customers to reduce time spent managing the storage platform including issue resolution. Our data platform helps customers scale their businesses throughstorage dashboards present real-time and more accurate analytics, increase employee productivity, improve operational efficiency,intuitive platform analytics; meanwhile, AI-based optimization proactively analyzes future workloads and deliver more compelling user experiencesglobal network issues to their customerslimit unforeseen infrastructure problems.
Subscription to Innovation - Delivering a subscription with low total cost of ownership, eliminating the need for forklift hardware replacements, and partners.providing customizable capacity and mobility, whether on-premise, in the cloud or hybrid cloud.
We sellPortworx Acquisition
In October 2020, we expanded our data platform predominantly throughservices capabilities for containerized, cloud-native applications with the acquisition of Portworx Inc. (Portworx), a high touch, channel-fulfilled model. Our sales force works collaborativelyprivately-held container storage company that provides a Kubernetes data services platform. Cloud-native databases, analytics applications and artificial intelligence (AI) frameworks, such as Cassandra, MongoDB, Postgres, Kafka, Elasticsearch, Spark, and Tensorflow, are the tools upon which customers build their modern data pipelines. By integrating Portworx container data services, which includes storage, data protection, data security and disaster recovery/backup, with our global network of distribution and channel partners, which provides us broad sales reach while maintaining direct customer engagement.
Recent Developments
In April 2017, we announced FlashArray//X,data platforms, this acquisition further enhances our first all-NVMe, enterprise-class all-flash array, which utilizesModern Data Experience by expanding our innovative DirectFlash technologies to interface our software directly with raw flash. FlashArray//X became generally available latersupport for these cloud-native applications on any infrastructure, on-premise or in the year.cloud environment at any scale.
In June 2017, we announced Purity ActiveCluster
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Products and Subscription Services
We generate the majority of our revenues from our Cloud Data Infrastructure productsand our Cloud Data Services and Cloud Data Management subscriptionswhich primarily include our Evergreen Storage subscription, Pure as-a-Service(PaaS), a true active/active metro stretch cluster solution, as well as various newand Cloud Block Store.
Products
Our Cloud Data Infrastructure consists of deeply-integrated storage hardware and software features including Policy QoSsolutions that enable cloud providers, enterprises, and VVols, and a series of updatesgovernments to FlashBlade, including an ultra-fast, all-flash S3 object store and a 17TB blade, which became generally available lateroperate their global data infrastructure in the year. We also announced Pure1 META,cloud. These solutions were built to be optimized for solid-state memory instead of the artificial intelligence engine within our platform for delivering on the visionhistorical spinning hard drive media and achieve superior levels of self-driving storage.
In August 2017, we announced that Charles Giancarlo was appointed as our new chief executive officer.
Innovative Technology and Business Model
We deliver our data platform via our flash-optimized software, Purity OE, modular and scalable all-flash hardware platforms, FlashArray and FlashBlade, as well as our Pure1 cloud-based management and support platform. We also offer a converged infrastructure solution, FlashStack, jointly with our partner Cisco. Our entire data platform is powered by innovative software that is cloud-connected for management from anywhere and supported by our Evergreen Storage business model. Similar to what customers expect from the public cloud, with Pure1 and Evergreen Storage, our customers benefit from near zero administration and a subscription to the latest technology, but with much higher performance and lower cost.simplicity by deeply co-designing hardware, software, and cloud connectivity to create fully-integrated storage appliances.

Our Cloud Data Infrastructure products include FlashArray and FlashBlade integrated appliances, which incorporate our proprietary Purity Operating Environment (Purity OE) software, as described below.

Purity Operating Environment Software
Software Optimized for Solid-State Memory
The heart of our data platform is our proprietary Purity OE software that implements enterprise-class storage services such as data reduction, encryption and data protection, as well as protocol services such as block, file and object. Variants of Purity OE have been optimized for both our FlashArray and FlashBlade platforms. Our Purity OE software employs variable block sizedelivers the most granular and complete data reduction, algorithms and can deliver up to two to five times better data reduction as compared to leading competitive products, resulting in an average of 5-to-1 data reductionwhich powers industry-leading total efficiency across a wide range of use cases and data types. Our software implements strong data-at-rest encryption of all data all the time, and is designed to maintain performance through failures andfailures. It also enables our arrays to be easily upgraded without scheduled downtime, setting new expectations for storage resiliency.resilience. With our DirectFlash architecture, recent versions of Purity OE have been optimized to speak directly to raw NAND Flash, enabling us to overcome the inefficiencies of prior commodity SSD architectures.
Hardware OptimizedFlashArray
FlashArray is our solution for Solid-Staterunning block-oriented storage, typically deployed for database, application, and virtual machine workloads. FlashArray was the industry’s first all-flash array and has helped drive the industry-wide transition from disk to flash. FlashArray is available in two varieties, FlashArray//X (//X), optimized for the highest performance Tier1 workloads, leveraging 3D TLC flash and Storage Class Memory (SCM), and FlashArray//C (//C), for capacity Tier2 workloads, optimized for the adoption of lower-cost QLC flash memory. These products both run the Purity//FA software, which has been fully-optimized for the unique characteristics of flash memory and offers both consistency and interoperability of data between //X and //C. FlashArray has a history of driving innovation in the all-flash array market, including in recent years, pioneering adoption of latest technologies such as NVMe, NVMe-oF, and QLC flash.
TheFlashBlade
FlashBlade is our solution for unified fast file and object storage, typically deployed for “big data'' applications such as real-time analytics, AI, log analytics, and data protection and recovery workloads. FlashBlade was the industry’s first all-flash array optimized for big data workloads and enables all-flash hardware underlying our FlashArrayto scale to multi-Petabyte scale deployments. FlashBlade is a scale-out system running the Purity//FB software and FlashBlade products is designedincludes integrated software-defined networking to maximize thedeliver revolutionary performance and density of flash, optimize our advanced software services,simplicity. FlashBlade’s large scale and minimize overall solution cost for customers. Our platforms are designedmultiple protocols allows it to be modulardeployed as a Data Hub, enabling customers to consolidate big data analytics, application development, webscale cloud applications, and upgradable over time, enablingbackup and recovery workloads, delivering all-flash performance in a cost-effective manner.
FlashBlade is the industry's most advanced storage for unstructured data, consolidating complex data silos to optimize infrastructure and accelerate tomorrow's discoveries and insights.
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FlashStack and AIRI
We also offer two all-flash converged infrastructure solutions, FlashStack and AIRI (AI-Ready Infrastructure). FlashStack, a joint solution with Cisco, bundles FlashArray and FlashBlade with Cisco UCS Servers and Networking to deliver a complete full-stack solution. AIRI, a joint solution with Nvidia, combines FlashBlade with Nvidia DGX AI Servers to create a turnkey infrastructure for artificial intelligence workloads.
Subscription Services
Our innovative subscription services deliver a full range of services to meet the IT and data needs for our visioncustomers and primarily include our Evergreen Storage subscription, PaaS, and Cloud Block Store.
Evergreen Storage Subscription and Pure1
Our Evergreen Storage subscription is often sold together with our Cloud Data Infrastructure solutions and significantly extends the life of our solutions. Our Evergreen Storagesubscription eliminates disruptive data migrations and eliminating the 3 to 5 year forklift refresh cycle of legacy storage systems. Our platform's design allows us to periodically deliver both processor and flashdowntime through software upgrades and enables customers to adopt these advances without data migration, downtime or performance impact.updates, onsite technical support, and the option of receiving hardware upgrades. This also enables a business model of ongoing up-sell to enable customers to easily expand capacity and performance as their data needs grow.
Our platforms are designed to maximize the performance of flash, leveraging native high bandwidth and low latency PCIe/NVMe networking and to be extremely simple and reliable without sacrificing the scalability and upgradability of an enterprise array. Because we design both our FlashArray and FlashBlade products in-house, and develop all of our Purity OE software specifically for our hardware, we are able to realize end-to-end optimizations between software and flash storage, such as true global flash management with DirectFlash software and FlashArray//X's end-to-end NVMe optimization. This allows us to deliver solutions with high density, power efficiency and tight integration for simplicity, all at a lower cost.
subscription includes Pure1, Management, Support and Analytics
Pure1 whichis a cloud-based management and support offering that enables our customers, our support staff, and our partners to seamlessly and securely collaborate to maximize the reliability of the Pure Storageour platform while minimizing management overhead and cost to the customer. This cloud-based platform removes the need for dedicated storage management infrastructure, enablesenabling customers to monitor a global storage deploymentoperations from a mobile device and simplifiessimplifying integration with other data center management solutions. Pure1's Global Insight technology also employs cutting-edge, real-time analytics and machine learning technologies to predictively identify potential issues with our platform, enabling our support organization to proactively resolve support incidents before they startarise - leading to higher uptime and availability for our data platform, and features powered by platform. Pure1 META enablealso enables customers to predict both capacity and performance and getreceive intelligent advice on workload, deployment, interaction, and optimization.capacity performance.
Innovative Business ModelPure as-a-Service
In addition to our product leadership and differentiated customer experience, our innovative business model helps us achieve our vision of Evergreen Storage. We believe that the traditional storage business model is expensive, resource intensive and detrimentally impacts customer operations. Our alternative approach is designed to eliminate this pain. We offer a simple all-inclusive software model and a new approach to the storage array purchase and expansion lifecycle, allowingPaaS enables customers to incrementally improve arraysubscribe to defined services for their storage needs based on performance and capacity as needed, dramatically reducing costwhether on-premise or in the public cloud. PaaS utilizes our Cloud Data Infrastructure and risk, while increasing predictability.software technology, providing the customer with flexibility in how they consume and pay for their work-load needs. This enablesincludes enabling a customer to move their workloads between on-premise and cloud environments using our Cloud Block Store technology. PaaS includes a Service Catalog aimed at revolutionizing the industry by publishing transparent pricing for on-premise and hybrid cloud storage delivered as-a-Service, providing a seamless purchasing model for customers.
Cloud Block Store
Cloud Block Store provides industrial-strength block storage services, running natively in the public cloud on top of basic cloud storage. Cloud Block Store is based upon the same Purity OE software that is used in on-premise environments, enabling customers to easily achieve hybrid cloud workflows. Our Cloud Data Services are software-delivered, require no hardware running in the public cloud or internet co-location data centers, and are designed to be multi-cloud, presently supporting Amazon Web Services. Cloud Block Store provides customers with a consistent storage experience and flexibility to operate a hybrid cloud model, leveraging both extendon-premise and public cloud infrastructure.
Growth Strategies
Key elements of our growth strategy include:

•Relentlessly Innovate and Maintain Technology Leadership. We will continue to invest in product innovation and technology leadership and plan to enhance our flash-optimized software and hardware portfolio, including FlashBlade, FlashArray//C and cloud-native applications, and cloud-based data management to lead the useful lifemodernization of disk to flash storage. We will continue to develop strategic relationships with technology vendors to expand the ecosystem and allow integration of our platform with their hardwareofferings, delivering streamlined solution outcomes to our customers.
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•Drive Subscription Services and avoidas-a-Service (flexible consumption model) Growth. We will continue to lead the costmarket and riskexpand our as-a-Service and subscriptions offerings to deliver our technology to customers in the most low-friction, flexible, and easy-to-consume ways. Our as-a-Service offerings are rooted in our core product technology, deliver a true "service experience," and allow us to continue to grow our base of recurring data migration.subscriptions.

•Continue to Drive Customer Base and Large Customer Adoption. We will continue to grow our base of customers, including large customers, by promoting our platform, increasing our investment in sales and marketing and leveraging our network of channel partners. We believe that it will be difficultour over 8,000 customers represent a significant opportunity for legacy storage vendorsus to entirely copyrealize incremental sales. We sell additional products and services to our business-model innovations givencustomers as the data within their disk-based product architectures, the inflexibility of hardware upgradesexisting application deployments naturally grows and as customers migrate additional applications to their platforms, and dependence on complex licensing programs and regular forklift array replacement upgrades.

our platform.

Our Customers
We target a variety of large and mid-size commercial enterprises, federal, state, and local governments, schools and healthcare organizations globally. Our global customer base includesis over 4,500 organizations as8,700 at the end of January 31, 2018,fiscal 2021, including over 30%approximately 48% of the Fortune 500. We have deployed our platform at customers across multiple industry verticals. Our platform has been deployed in some of the largestLarge enterprises and most sophisticated enterprises in the world as well as smaller organizations with limited IT expertise or budget including hospitals, municipalitiesconsume and school districts. Hundreds ofbenefit from using our technology. We have deployed our products and subscription services to customers have invested north of a million dollars in leveraging our platform across their business-critical applications.multiple industry verticals and geographies. We define a customer as an end userentity that purchases our products and services either from one of our channel partners or from us directly. No end customer represented more than 10% of our revenue for the year ended January 31, 2018.
Sales and Marketing
Sales.Sales. We sell our storage platform predominantly throughproducts and subscription services using a high touch, channel-fulfilleddirect sales model.force, including a specialized sales force for our key growth products, and our channel partners. Our sales organization supports our channel partnersis supported by sales engineers with deep technical expertise and is responsibleresponsibility for large-account penetration, global account coordinationpre-sales technical support, solutions engineering and overall market development.technical training. Our channel partners helpsell and market and sell our products typicallyand subscription services in partnership with assistance from our direct sales force. This joint sales approach provides us with the benefit of direct relationships with our customers and expands our reach through the relationships of our channel partners. In certain geographies we sell through a two-tier distribution model. We also sell to service providers that deploy our products and offer cloud-based storage services to their customers. No channel partner represented 10% of our revenue for the year ended January 31, 2018.
We intend to continue to expand our partner relationships to further extend our sales coverage and to invest in education, training and programs to increase the ability of our channel partners to sell our products independently. We expect to continue to grow our sales organization and expand our international sales presence. Generally, our sales representatives have become more productive the longer they are with us, with limited productivity in their first few quarters as they learn to sell our products, participate in classroom and field training and build a customer base. We optimize our sales management efforts to help our sales representatives maximize their productivity throughout their tenure. Our sales organization is supported by sales engineers with deep technical expertise and responsibility for pre-sales technical support, solutions engineering and technical training.partners.
Technology Alliances. We work closely with technology partners that help us deliver an ecosystem of world-class solutions to our customers and ensure the efficient deployment and support of their data center infrastructure.environments. Our technology partners include application partners such as Microsoft, Oracle and SAP, cloud partners such as AWS, Microsoft Azure, Google, and IBM, and infrastructure partners such as Arista, Brocade, Catalogic, Cisco, Citrix, Cohesity, CommVault, Nvidia, RedHat, Rubrik, Symantec, VeeamNVIDIA and VMware. In addition, we work closely with our technology partners through co-marketing and lead-generation activities in an effort to broaden our marketing reach and help us win new customers and retain existing ones.
Marketing. Our marketing is focused on building our brand reputation and market awareness, communicating product advantages driving customerand demand and generating leadsgeneration for our sales force and channel partners. Our marketing effort consists primarily of product, field, channel, solutions, and digital marketing and public relations.
Research and Development
Our research and development efforts are focused primarily on improvinginnovation, building new features and functionality for our existing products and subscription services, developing software, and building new products. Our products integrate both software and hardware innovations, and accordingly, our research and development teams employ both software and hardware engineers in the design, development, testing, certification and support of our products. The majority of ourOur research and development team isteams are primarily based in Mountain View, California.California, Bellevue, Washington and Prague, Czech Republic. We also design, test and certify our products to ensure interoperability with a variety of third-party software, servers, operating systems and network components. We plan to continue to dedicateinvesting globally in significant resources tofor our ongoing research and development efforts.
Research and development expenses were $166.6 million, $245.8 million and $279.2 million for the years ended January 31, 2016, 2017 and 2018.
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Manufacturing
Our primary contract manufacturer, Hon Hai Precision Industry Co., Ltd., known as Foxconn, manufactures, assembles, testsmanufacturers manufacture, assemble, test and packagespackage our products in accordance with our specifications. Our contract manufacturers


generally procure the hardware components for final assembly of our products. Most of the components are purchased from sources that we believe are readily available from other suppliers.
We provide our contract manufacturers with a rolling forecast for anticipated orders, which our contract manufacturers use to build finished products. The product mix and volumes are adjusted based on anticipated demand and actual sales and shipments in prior periods. Our contract manufacturers are generally able to respond to changes in our product mix or volume without significant delay or increased costs. Our agreement with Foxconn has a three-year term that is subject to optional extensions absent notice of termination by either party. This agreement is terminable at any time by either party with 180-days’ prior notice. Our agreement with our contract manufacturers do not provide for any specific volume purchase commitments and orders are placed on a purchase order basis. We work closely with our contract manufacturers to meet our product delivery requirements and to manage the manufacturing process and quality control.
Backlog
We typically accept and ship orders within a short time frame. In general, customers may cancel or reschedule orders without penalty, and delivery schedules requested by customers in their purchase orders vary based upon each customer’s particular needs. As a result, we do not believe that our backlog at any particular time is a reliable indicator of future revenue.
Seasonality
We generally experience the lowest demand forseasonality as sales of our products and subscription services inare generally lower during the first quarter of our fiscal year and the greatest demand for our products and services inhighest during the last quarter of our fiscal year, which is consistent with the seasonalityyear. As a result, we expect that our business and results of the enterprise storage/IT industry as a whole.operations will fluctuate from quarter to quarter.
Competition
We operate in the intensely competitive data storage market that is characterized by constant change and innovation. Changes in the application requirements, data center infrastructure trends and the broader technology landscape result in evolving customer requirements for capacity, performance scalability and enterprise features of storage systems. Our main competitors include largelegacy vendors, such as Dell EMC, Hitachi Vantara, HP Enterprise, IBM, Lenovo, and NetApp, thateach of which offer a broad range of systems targeting various use cases and end markets, and have the technical and financial resources to bring competitive products to market.
In addition, we compete against some cloud providers and vendors of hyper-convergedhyperconverged products. Some large-scale cloud providers, known for developing storage systems internally, are expanding quickly and offer alternatives to our products for a variety of customer workloads. Our market attracts new startups and more highly specialized vendors, as well as largerother vendors that may continue to acquire or bundle their products more effectively. The acquisitions of EMC by Dell, Nimble Storage by HP Enterprise and SolidFire by NetApp have introduced new competitive dynamics into the storage market.that compete with our offerings. All of our competitors utilize a broad range of competitive strategies.
We believe the principal competitive factors in the storage market are as follows:
•Product features and enhancements, including ease of use, performance, reliability, scalability, security, and scalability;complementary product offerings;
•Product pricing and total cost of ownership;
•Product interoperability with customer networks and backup software;
•Global sales and distribution capability;capability, including an ability to build and maintain senior customer relationships;
•Ability to take advantage of improvements in industry standard components; and
•Customer support and service.
We believe we generally compete favorably with our competitors on the basis of these factors as a result of our hardware and software, product capabilities, ability to deliver the benefits of all-flash storage to a broad set of customers, management simplicity, ease of use and differentiated customer support. However, many of our competitors have substantially greater financial, technical and other resources, greater name recognition, larger sales and marketing budgets, broader distribution and larger and more mature intellectual property portfolios.



Intellectual Property
Our success depends in part upon our ability to protect our core technology and intellectual property. To establish and protect our proprietary rights, we rely on a combination of intellectual property rights, including patents, trademarks, copyrights, trade secret laws, license agreements, confidentiality procedures, employee disclosure and invention assignment agreements and other contractual rights.
We have over 7002,000 issued patents and patent applications in the United States and foreign countries. We also license technology from third parties when we believe it will facilitate our product offerings or business.
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Human Capital Resources
Our Chief People Officer (CPO) leads our human capital initiatives which includes the design and execution of all people strategy components. The CPO delivers human capital reports to the board of directors and compensation committee on a quarterly basis.
This past year we saw the evolution and pivot of our business strategy to cloud and data services which tested our organization’s agility and overall effectiveness. This inflection point served as a springboard to drive additional improvements across our business, including as it relates to our people strategy.
Our workforce is distributed over 39 countries, with 3,800 employees globally - almost 2,800 in the U.S. and over 1,000 internationally. We mobilize and engage our teams to support our cloud and data services strategy using the following objectives and measures.
Overall Employee Satisfaction
To ensure employee engagement and satisfaction, we assess employees twice a year through our Employee Voice Survey program. We focus on measuring employee engagement, manager effectiveness, inclusion and belonging, and operational excellence. Also, as a result of COVID-19, we added five additional touchpoints to understand how our employees were coping, specifically measuring resilience and overall well-being. Our employee net promoter score (eNPS) score has been consistently high since we started this survey a few years ago.
Response to COVID-19 Pandemic
In January 2020, our CPO brought together leaders from across the business to form a cross-functional rapid response team (Tiger Team) to address COVID-19. This COVID-19 Tiger Team continues to meet several times weekly focused on providing accurate guidance, policies and programs to support our employees around the world. Here are last year's highlights:
•Work-from-home: To support the transition to working from home, we provided work-from-home stipends to build out home offices with ergonomic equipment.
•Benefits: We customized our benefit offerings to lean into programs focused on managing stress and mental health. All employees have adoptedvirtual mental health and coaching sessions easily accessible to them and U.S. employees have 24/7 access to a policy undervirtual care team through a vendor which focuses on delivering COVID-19 testing, counseling, and family support. We also refreshed our death and permanent disability insurance to provide world-class coverage during the pandemic.
•Parents: We held several parent panels across our global regions designed to offer support and best practices to our community of parents. We also offered free resources, giving parents with children of any age, access to learning materials, webinars, and one-on-one coaching sessions.
•Essential worker safety: We launched the Return to Office Playbook that outlines new safety and health protocols to keep essential workers safe in our offices. The playbook also outlines protocols in the event of a COVID-19 exposure to ensure an accurate chain of communications and next steps are taken in that specific office/region.
•Workforce of the future: Looking to a post-COVID world, we will not assert patents acquiredshift to datea hybrid workforce where offices will offer more collaborative spaces and working from third parties offensively, other than ashome will become part of the regular week.
Culture of Excellence, Accountability, and Learning
Our company goals and leadership attributes set the tone for our culture of excellence and accountability. Through our Speak Up Policy, Code of Conduct, and Culture of Compliance survey, employees are empowered to use their voice and be transparent without fear of retaliation. In recognition, we garnered several accolades this year: Fortune Best Workplaces in Technology™ 2020, Fortune Best Workplaces in the Bay Area™ 2020, and Fortune Best Workplaces for Parents.
In the past year, the Pure Learning and Development team has redesigned all of their program offerings to an entirely virtual delivery model, while also creating new programs like Manager Essentials and Leading at Pure, which focus entirely on building our leaders of tomorrow.
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Growing, Retaining and Attracting Talent
Our talent is our greatest asset. We are actively growing our employees from a counterclaim.skills and leadership perspective while also retaining our top performers and diverse talent. Our annual performance program brings feedback and rewards together to help facilitate an ongoing conversation between managers and employees on progress, goals, and expectations. We remain committed to our diverse hiring and sourcing practices to achieve healthy representation in candidate slates and interviewer panels while also bringing rigor and accountability to evaluating and hiring our talent.
Diversity, Inclusion, Belonging (DIBs)
Employees
We believehired our first Head of Diversity, Inclusion and Belonging in 2020 to further invest in our equity efforts. Our employee DIBs index last year, based on an internal employee survey, was high, reflecting the expertisepositive impact of our peopleinclusivity efforts to date. We also have seven Employee Resource Groups that meet monthly and our culture is a key enablercontinue to be the fabric of our technology leadership. culture.
Total Rewards
We had over 2,100provide competitive and fair compensation and innovative benefit offerings. We regularly benchmark our programs against the market to ensure we are delivering competitive salaries, variable pay, equity awards as well as health and welfare benefits to employees. We conduct internal pay equity analyses to ensure appropriate pay is provided to everyone. We offer a comprehensive and tailored set of benefits to employees worldwide as of January 31, 2018. As of January 31, 2018, we had approximately 580, 1,050 and 180 employees in researchtheir families including wellness programs and development, salesparental and marketing and general and administrative functions, respectively, with the remainder primarily related to support and operations. None of our employees is represented by a labor union or covered by a collective bargaining arrangement.adoption leave.
Information about Segment and Geographic Areas
The segment and geographic information required herein is contained in Note 10 of our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
CorporateAvailable Information
We were incorporated in Delaware in October 2009 as OS76, Inc. In January 2010, we changed our name to Pure Storage, Inc. Our principal executive offices are located at 650 Castro Street, Suite 400, Mountain View, California 94041, and our telephone number is (800) 379-7873. Our website address is www.purestorage.com. Information contained on or accessible through our website is not a part of this report and the inclusion of our website address in this report is an inactive textual reference only.
Pure Storage, the “P” logo, DirectFlash, Evergreen, FlashArray, FlashBlade, FlashStack, Pure1, Purity Operating Environment and other trade names, trademarks or service marks of Pure Storage appearing in this report are the property of Pure Storage. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders.
Available Information
We make available, free of charge through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Sections 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after they have been electronically filed with, or furnished to, the SEC.
The public may read and copy any materials we file with In addition, the SEC at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Trademark Notice
PureStorage, the “P” logo and other trade names, trademarks or service marks of Pure Storage appearing in this report are the property of Pure Storage. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders.

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Item 1A. Risk Factors.
Investing in our Class A common stock, which we refer to as our "common stock", involves a high degree of risk. Investors should carefully consider the risks and uncertainties described below, together with all of the other information contained in this report, including our consolidated financial statements and the related notes appearing in this annual report, before deciding to invest in our Class A common stock. If any of the following risks actually occur, it could harm our business, prospects, operating results and financial condition. In such event, the trading price of our Class A common stock could decline and investors might lose all or part of their investment.


Summary of Risk Factors
Risks RelatedOur business is subject to numerous risks and uncertainties, many of which are beyond our control. Some of the principal risks associated with our business include the following:
•Our Business and Industry
We have experienced rapid growth in recent periods, and we may not be able to sustain or manage future growth effectively.
We have significantly expanded our overall business, customer base, headcount, channel partner relationships and operations in recent periods, and we anticipate that we will continue to expand and experience growth in future periods. For example, from January 31, 2016 to January 31, 2017, our headcount increased from over 1,300 to over 1,700 employees, and to over 2,100 employees as of January 31, 2018. Our future operating results, will dependcash flows and financial condition may be materially adversely affected by the COVID-19 pandemic, including the resulting global economic uncertainty and measures taken in response to a large extent onthe pandemic.
•The rapidly evolving market for data storage products makes it difficult to forecast demand for our products.
•Our business may be harmed by trends in the overall external storage market.
•We face intense competition from established companies and new entrants.
•Many of our competitors have long-standing relationships with key decision makers at current and prospective customers, which may inhibit our ability to successfully sustain our growth and manage our anticipated expansion. To sustain and manage our growth successfully, we believe that we must, among other things, effectively:compete.
maintain and extend our product leadership;
recruit, hire, train and manage additional personnel;
maintain and further develop our channel partner relationships;
enhance and expand our distribution and supply chain infrastructure;
expand our support capabilities;
forecast and control expenses;
enhance and expand our international operations; and
implement, improve and maintain our internal systems, procedures and controls.
We expect that our future growth will continue to place a significant strain on our managerial, administrative, operational, financial and other resources. We will incur costs associated with this future growth prior to realizing the anticipated benefits, and the return on these investments may be lower, may develop more slowly than we expect or may never materialize. •If we are unablefail to develop and introduce new or enhanced products successfully, our ability to attract and retain customers could be harmed.
•If we fail to manage our growth effectively, wetransition to subscription offerings successfully, our revenues and results of operation may not be able to take advantage of market opportunities or develop new products or enhancements to existing products in a timely manner, and we may fail to satisfy customers’ expectations, maintain product quality, execute on our business plan or adequately respond to competitive pressures, each of which could adversely impact our growth and affect our business and operating results.harmed.
•We intend to continue focusing on revenue growth and increasing our market penetration and international presence by investing heavily in our business, and thiswhich may put pressure on near-term profitability.
•Our gross margins are impacted by a variety of company-specific factors and vary from period to period.
•The sales prices of our products and services may fluctuate or decline, which may reduce our gross profits, revenue growth, and adversely impact our financial results.
•Any disruption to our contract manufacturer or other supply arrangements could delay shipments of our products and could harm our relationships with current and prospective customers.
•We derive the majority of our revenue from our FlashArray products, and a decline in demand for these products would cause our revenue to grow more slowly or to decline.
Risks Related to Our Business and Industry
Our strategy is to continue with our investments in marketing, sales, support and research and development. We believe our decision to continue investing heavily in our business, will be critical to our future success and to meet our growth objectives. We anticipate that our operating costs and expenses will continue to increase in absolute terms. In addition, we expect to continue incurring significant legal, accounting and other expenses in order to operate effectively as a public company at our scale. Even if we achieve or maintain significant revenue growth, we may continue to experience losses, forgoing near-term profitability on a GAAP basis.
We have not achieved profitability for any year since our inception. We incurred a net loss of $177.6 million for the year ended January 31, 2018, and we had an accumulated deficit of $980.1 million as of January 31, 2018. Our operating expenses largely are based on anticipated revenue, and a high percentage of our expenses are, and will continue to be, fixed in the short term. If we fail to adequately increase revenue and manage costs, we may not achieve or maintain profitability in the future. As a result, our business could be harmed and our operating results, could suffer.
We have a limited operating historycash flows and financial condition may be materially adversely affected by the COVID-19 pandemic, including the resulting global economic uncertainty and measures taken in an industry characterized by rapid change,response to the pandemic, the impacts of which makes ourwill depend on ongoing and future operating resultsdevelopments, which are highly uncertain and difficult to predict.
We were foundedThe COVID-19 pandemic has resulted in October 2009, but have generated substantiallysignificant global social and business disruption and economic contraction. The pandemic has impacted our business and has also put unprecedented strains on governments, health care systems, educational institutions, businesses and individuals around the world. The ongoing impact on the global population and the magnitude and duration of the COVID-19 pandemic is difficult to assess or predict. It is even more difficult to predict the ongoing impact on the global economic market, which will be highly dependent, among other things, upon the actions of governments, businesses and other organizations in response to the pandemic and the effectiveness of those actions.
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The extent and continued impact of the COVID-19 pandemic on our business and operational and financial performance depends on many factors, including the duration and spread of the outbreak; the availability and effectiveness of vaccines; government responses to and restrictions related to the pandemic; impact on our customers and our sales efforts and cycles; impact on our customer, industry or employee events; and effect on our partners, vendors and supply chains, all of which are uncertain and outside of our revenue incontrol. Potential negative impacts of these external factors include, but are not limited to, material adverse effects on demand for our last three fiscal years. We have a limited operating history in an industry characterized by rapid change, changing customer needs, evolving industry standards and frequent introductions of new products and services. Our limited operating history makes it difficultservices, including due to evaluate our current businessbudget constraints and our future prospects, includingother uncertainties; our ability to plan forgain new customers; our employee productivity; our supply chain and model future growth. Allsales and distribution channels; collectability of these factors make our future operating results difficult to predict, which may impaircustomer accounts; our ability to manageexecute strategic plans; impairments; and our businessprofitability and reduce investors’ abilitycost structure.
Further, the COVID-19 pandemic has enhanced, and may further exacerbate, other risks discussed in this “Risk Factors” section, particularly risks associated with demand, market trends, relationship building and sales efforts, as well as risks affected by the shift to assess our prospects.


Investors should not consider our revenue growthworkforce largely working from home. We are continuing to monitor the pandemic and intend to continue taking appropriate steps in prior quarterly or annual periods as indicativeaccordance with the recommendations and requirements of our future performance. In future periods, we do not expect to achieve similar percentage revenue growth rates as we have achieved in some past periods. If we are unable to maintain adequate revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability.relevant authorities.
The rapidly evolving market for all-flashdata storage products is rapidly evolving, which makes it difficult to forecast customer adoption rates and demand for our products.
The market for all-flashdata storage products is rapidly evolving. As aChanges in the application requirements, data center infrastructure trends and the broader technology landscape result ourin evolving customer requirements for capacity, performance scalability and enterprise features of storage systems. Our future financial performance will depend on the continued growth of this market anddepends on our ability to adapt to competitive dynamics and emerging customer demands and trends. SalesThe introduction of our products have largely focused on use cases that require performance storage products such as virtualization and transaction processing. Some potential customers have not purchased all-flash storage products and may not have the desire or available budget to invest in a new technology such as ours. Incumbentby incumbent vendors are actively promoting storage products retrofitted with flash, which may reduce the perceived value of purpose-built, all-flash products like ours. It is difficult to predict with any precision customer adoption rates of flash, customer demand for our products or the future growth rate and size of our market.
Our products may never reach mass adoption, and changes or advances in alternative technologies or adoption of cloud storage offerings that do not utilizingutilize our storage platform could adversely affect the demand for our products. For instance, offeringsOfferings from large-scalelarge public cloud providers are expanding quickly and may serve as alternatives to our products for a variety of customer workloads. Since these providers are known for developing storage systems internally, this trend could reducereduces the demand for storage systems developed by original equipment manufacturers, such as us. Further, although flash storage has a numberIt is difficult to predict with any precision customer adoption rates of advantages as compared to other data storage alternatives, flash storage has certain limitations as well, including more limited methodsnew offerings, customer demand for data recoveryour products or the future growth rate and reduced performance gains for certain uses, such as sequential input/output, or I/O, transactions.size of our addressable market. A slowing in or reducedreduction in demand for all-flashour data storage products caused by lack of customer acceptance, technological challenges, alternative technologies and products or otherwiseany other reason would result in a lower revenue growth rate or decreased revenue, either of which would negatively impact our business and operating results.
Our business may be harmed by trends in the overall external storage market.
Despite ongoing data growth, the external storage market in which we compete has not experienced substantial growth in the past few years due to a combination of technology transitions, increased storage efficiency, competitive pricing dynamics and changing economic and business environments. Customers are rethinking how they consume IT, increasing spending toward the public cloud, software as a service, hyperconverged and converged infrastructure and software-defined storage. Any failure on our part to accurately predict trends, successfully update our product offerings or to adapt our sales programs to meet changing customer demands could harm our business, operating results and financial condition. The future impact of these trends on both the short-term and long-term growth of the overall external storage market is uncertain. Reductions in the overall external storage market or the specific markets in which we compete would harm our business and operating results.
We face intense competition from a number of established companies and new entrants.
We face intense competition from a number of established companies that sell competitive storage products. These competitors includeproducts, including Dell EMC, HP Enterprise, Hitachi Vantara, IBM, LenovoNetApp and NetApp. These competitors, as well as other potentialothers. Our competitors may have:
•greater name and brand recognition and longer operating histories;
•larger sales and marketing and customer support budgets and resources;
•broader distribution and established relationships with distribution partners and customers;
•the ability to bundle storage products with other products and services to address customers’ requirements;
•greater resources to make acquisitions;
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•larger and more mature product and intellectual property portfolios; and
•substantially greater financial, technical and other resources.
We also face competition from a number of other companies, one or more of which may become significant competitors in the future. For example, we compete against certain cloud providers and vendors that offerof hyperconverged products, thatwhich combine compute, networking and storage, or hyperconverged products. Some cloudstorage. These providers are growing and expanding quickly, and their product offerings, could, if we are unable to effectively sell to these providers, displacepotentially displacing some demand for our products. Vendors offering hyperconverged products are attempting to displace dedicated storage products like ours. New competitors could emerge and acquire significant market share. The acquisitions of EMC by Dell, Nimble Storage by HP Enterprise and SolidFire by NetApp have introduced new competitive dynamics.  All of our competitors may utilize a broad range of competitive strategies. For example,In addition, some of our competitors have offeredoffer bundled products and services in order to reduce the initial cost of their storage products. Our competitors may also choose to adopt more aggressive pricing policies than we choose to adopt. SomeFurther, some of our competitors have offeredoffer their storage products either at significant discounts or even for free in competing against us and in response to our efforts to market the overall benefits and technological merits of our products and programs.us.
Many competitors have developed or acquired competing all-flashstorage technologies with features or hybrid storage technologies. For example, several of our competitors have introduced all-flash storage products with performance-focused designs and/or with data reduction


technologies that directly compete with our products or have introduced business programs that attemptdesigned, among other things, to compete with or mitigate against, the value of our innovative programs, such as our Evergreen Storage model of hardware and software upgrades and maintenance. model. We expect our competitors to continue to improve the performance of their products, reduce their prices and introduce new features, services and technologies that may, or that they may claim to, offer greater value as compared to our products. In addition, our competitors may develop enhancements to, or future generations of, competitive products thatthese developments may render our products or technologies obsolete or less competitive. These and other competitive pressures may prevent us from competing successfully against our current or future competitors.

Our business may be harmed by trends in the overall external storage market.

Despite ongoing data growth, the external storage market in which we compete has not experienced overall
growth in the past few years due to a combination of technology transitions, increased storage efficiency, and changing economic and business environments. Customers are rethinking how they consume IT, increasing spending toward public cloud, software as a service, hyperconverged and converged infrastructure and software-defined storage. The future impact of these industry, technological or market changes on both short-term and long-term growth trends for the overall external storage market is uncertain. If the overall storage market declines, or if the growth rates of the specific markets in which we compete decline, and/or if the consumption model of storage changes and our new and existing products do not receive customer acceptance, our business and operating results could be harmed.
Many of our established competitors have long-standing relationships with key decision makers at many of our current and prospective customers, which may inhibit our ability to compete effectively and maintain or increase our market share.compete.
Many of our competitors benefit from established brand awareness and long-standing relationships with key decision makers at many of our current and prospective customers. Our competitors often leverage these existing relationships to discourage customers from evaluating or purchasing our products. In particular, when competing against us, our competitors promote the adequacy of their all-flash or hybrid storage products and emphasize the perceived risks of relying on products from a company that has a shorter operating history. Sales and marketing tactics by established competitors may include incomplete or misleading statements about their products, or about us and our products that could harm or impede our business. Additionally, most of our prospective customers have existing storage systems manufacturedproducts supplied by our competitors. This gives an incumbent competitorcompetitors who have an advantage in retaining the customer because, among other things, the incumbent competitorvendor already understands the customer’s IT infrastructure, user demands and needs. Inneeds, or the event thatcustomer is concerned about actual or perceived costs of switching to a new vendor and technology, particularly during the uncertainty created by COVID-19.If we are unable to successfully sell our products to new customers or persuade our customers to continue purchasing our products, we will not be able to maintain or increase our market share and revenue, which couldwould adversely affect our business and operating results.
Our ability to increase our revenue will substantially depend on our ability to attract, motivatebrand name and retain sales, engineering and other key personnel, including our management team, and any failure to attract, motivate and retain these employees could harm our business operating results and financial condition.
Our ability to increase our revenue will substantially depend on our ability to attract and retain qualified sales, engineering and other key employees, including our management. These positions may require candidates with specific backgrounds in software and the storage industry, and competition for employees with such expertise is intense. Our ability to attract, motivate or retain employees may be reduced, asharmed by the valuemarketing strategies of our stock fluctuatescompetitors.
We believe that building and asmaintaining brand recognition and customer goodwill is critical to our employeessuccess. Our efforts in this area have, on occasion, been hampered by the opportunity to sell their equity awards. We may not be successful in attracting, motivating and retaining qualified personnel. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. To the extent that we are successful in hiring to fill these positions, we need a significant amount of time to train the new employees before they can become effective and efficient in performing their jobs. From time to time, there may be changes in our management team, which could create short term uncertainty. For example, in August 2017, we appointed Charles H. Giancarlo as our new chief executive officer. Membersmarketing efforts of our management team, includingcompetitors, which have included negative or misleading statements about us and our executive officers, are generally employed on an at-will basis, which means that they could terminate their employment with us at any time.products. If we are unable to attract, motivateeffectively respond to the marketing efforts of our competitors and retain qualified sales, engineeringprotect our brand and other key employees, including our management,customer goodwill now or in the future, our business and operating results could suffer.
If we fail to adequately expand and optimize our sales force, our growth will be impeded.
We will need to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. We plan to continue to expand and train our sales force, both domestically and internationally. Identifying, recruiting and training qualified sales personnel require significant time, expense and attention. We must


design and implement effective sales incentive programs, and it can take time before our sales representatives are fully trained and productive. Our business may be adversely affected if our efforts to expand and train our sales force do not generate a corresponding increase in revenue. In particular, if we are unable to hire, develop and retain qualified sales personnel or if new sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenue.
If we fail to develop and introduce new or enhanced products successfully, our ability to attract and retain customers could be impaired and our competitive position could be harmed.
We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. To compete successfully, we must design, develop, market and sell new or enhanced products that provide increasingly higher levels of performance, capacity and reliability and that meet the cost expectations of our customers, which is a complex and uncertain process. The introduction of new products by our competitors, the market acceptance of products based on new or alternative technologies or the emergence of new industry standards could render our existing or future products obsolete or less competitive. As we introduce new or enhanced products, we must successfully manage product launches and transitions to the next generations of our products, and encourage adoption of new products and features by existing customers. For example, we started initial shipments of our new FlashBlade and FlashArray//X products, and introduced a variety of new software features, throughout last year. If we are not able to successfully manage the development and release of new or enhanced products, our business, operating results and financial condition could be harmed. Similarly, if we fail to introduce new or enhanced products, such as new or improved software features, that meet the needs of our customers in a timely or cost-effective fashion, we may lose market share and our operating results could be adversely affected.
Our research and development efforts may not produce successful products that result in significant revenue in the near future, if at all.
Developing new products and related enhancements, including new or improved features, is expensive and time intensive. Our investments in research and development may result in products that may not achieve market adoption, are more expensive to develop than anticipated, may take longer to generate revenue or may generate less revenue than we anticipate. Our future plans include significant investments in research and development for new products and related opportunities. We believe that we must continue to dedicate significant resources to our research and development efforts to maintain or expand our competitive position. However, these efforts may not result in significant revenue in the near future, if at all, which could adversely affect our business and operating results.
If we fail to successfully maintain or grow our relationships with channel partners, our business, operating results and financial condition could be harmed.
Our future success is highly dependent upon our ability to establish and maintain successful relationships with a variety of channel partners.our partners, including value-added resellers, service providers and systems integrators. In addition to selling our products, our partners may offer installation, post-sale service and support on our behalf in their local markets. In markets where we rely on partners more heavily, we have less contact with our customers and less control over the sales process and the quality and responsiveness of our partners. As a result, it may be more difficult for us to ensure the proper delivery and installation of our products or the quality or responsiveness of the support and services being offered. Any failure on our part to effectively identify, train and manage our channel partners and to monitor their sales activity, as well as the customer support and services being provided to our customers, in their local markets, could harm our business, operating results and financial condition.
Our channel partners may choose to discontinue offering our products and services or may not devote sufficient attention and resources toward selling our products and services. We typically enter into non-exclusive, written agreements with our channel partners. These agreements generally have a one-year, self-renewing term, have no minimum sales commitment and do not prohibit our channel partners from offering products and services that compete with ours. Additionally, our competitors provide incentives to our existing and potential channel partners to use, purchase or offer their products and services or to prevent or reduce sales of our products and services. The occurrence of any of these events could harm our business, operating results and financial condition.
Our gross margins are impacted by a variety of factors and are subject to variation from period to period, and as a result, can be difficult to predict.
Our gross margins fluctuate from period to period due primarily to product costs, customer mix and product mix. Over the year ended January 31, 2018, our quarterly gross margins ranged from 65% to 66%. Our gross margins may fluctuate and may be affected by a variety of factors, including:


demand for our products;
sales and marketing initiatives, discount levels, rebates and competitive pricing;
changes in customer, geographic or product mix, including mix of product configurations;
the cost of components, including NAND and DRAM flash, and freight;
new product introductions and enhancements, potentially with initial sales at relatively small volumes and higher product costs;
the timing and amount of revenue recognized and deferred, including any impact from the adoption of the new revenue standard (ASC 606);
excess inventory levels or purchase commitments as a result of changes in demand forecasts or product transitions;
an increase in product returns, order rescheduling and cancellations;
the timing of technical support service contracts and contract renewals;
inventory stocking requirements to mitigate supply constraints, accommodate unforeseen demand or support new product introductions; and14
product quality and serviceability issues.

Due to such factors, gross margins are subject to variation from period to period and are difficult to predict. If we are unable to manage these factors effectively, our gross margins may decline, and fluctuations in gross margins may make it difficult to manage our business and achieve or maintain profitability, which could materially harm our business, operating results and financial condition.
Our operating results may fluctuate significantly, which could make our future results difficult to predict and could cause our operating results to fall below expectations.
Our operating results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. If our revenue or operating results fall below the expectations of investors or any securities analysts that follow our company, the price of our Class A common stock would likely decline.
Factors that are difficult to predict and that could cause our operating results to fluctuate include:
the timing and magnitude of orders, shipments and acceptance of our products in any quarter, including product returns, order rescheduling and cancellations by our customers;
fluctuations in demand and prices for our products;
seasonality in our business or the markets we serve;
our ability to control the costs of the components we use in our hardware products;
our ability to timely adopt subsequent generations of components into our hardware products;
disruption in our supply chains, component availability and related procurement costs;
reductions in customers’ budgets for IT purchases;
changes in industry standards in the data storage industry;
our ability to develop, introduce and ship in a timely manner new products and product enhancements that meet customer requirements;
our ability to effectively manage product transitions as we introduce new products;
any change in the competitive dynamics of our markets, including new entrants or discounting of product prices;
our ability to control costs, including our operating expenses; and
future accounting pronouncements and changes in accounting policies, including our ability to implement the new processes necessary to accurately recognize our revenue under ASC 606 going forward.


The occurrence of any one of these risks could negatively affect our operating results in any particular quarter, which could cause the price of our Class A common stock to decline.
Our sales cycles can be long, unpredictable and unpredictable, particularly with respect to large orders, and our sales efforts require considerable time and expense. As a result,expensive, making it can be difficult for us to predict when, if ever, a particular customer will choose to purchase our products, which may cause our operating results to fluctuate.future sales.
Our sales efforts involve educating our customers about the use and benefits of our products including their technical capabilities and cost saving potential. Larger customers often undertake aninvolves evaluation and testing process that can result in a lengthy sales cycle.cycle, particularly for larger customers. We spend substantial time and resources on our sales efforts without any assurance that our efforts will produce any sales. COVID-19 has impacted our sales efforts, such as limiting our ability to travel for or host in-person meetings or events. In addition, product purchases are frequently subject to budget constraints, multiple approvals and unplanned administrative processing and other delays. Some of our customers make large concentrated purchases to complete or upgrade specific data storage deployments. As a consequence, our quarterly revenue and operating results may fluctuate from quarter to quarter. A substantial portion of our quarterly sales typically occurs during the last several weeks of the quarter, which we believe largely reflects customer buying patterns of products similar to ours and other products in the technology industry generally. Since we do not recognize revenue from a product sale is not recognized until title is transferred for the product, if we haveperformance obligations are satisfied, a substantial portion of our sales at the end oflate in a quarter we may be unable to transfer title and recognizenegatively impact the recognition of the associated revenue in that quarter.revenue. Furthermore, our products come with a 30-day money back guarantee, allowing a customer to return a product within 30 days of receipt if the customer is not satisfied with its purchase for any reason. In addition, a portion of our sales in any quarter is generated by sales activity initiated during the quarter. These factors, among others, make it difficult for us to predict when customers maywill purchase our products. We may expend significant resources on an opportunity without ever achieving a sale,products, which may adversely affect our operating results and cause our operating results to fluctuate. In addition, if sales expected from a specific customer for a particular quarter are not realized in that quarter or at all, our operating results may suffer.
Our company culture has contributedSales to U.S. federal, state, local and foreign governments are subject to a number of challenges and risks that may adversely impact our business.
Sales to U.S. federal, state, local and foreign governmental agencies may in the future account for a significant portion of our revenue and sales to governmental agencies impose additional challenges and risks to our success,sales efforts.Government certification requirements applicable to our products may change and ifin doing so restrict our ability to sell into the U.S. federal government sector until we cannot maintain this culture as we grow, we could losehave attained the innovation, creativityrevised certification.Government demand and teamwork fostered bypayment for our culture,products and our businessservices may be impacted by public sector budgetary cycles and funding authorizations, including in connection with an extended federal government shutdown, with funding reductions or delays adversely affecting public sector demand for our products and services.We sell our products to governmental agencies through our channel partners, and these agencies may have statutory, contractual or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our future results of operations.Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our products, which would adversely impact our revenue and results of operations, or institute fines or civil or criminal liability if the audit uncovers improper or illegal activities.Finally, governments may require certain products to be manufactured in the United States and other relatively high-cost manufacturing locations, and we may not manufacture all products in locations that meet these requirements, affecting our ability to sell these products to governmental agencies.
Risks Related to Our Products and Subscription Services Offerings
If we fail to develop and introduce new or enhanced products successfully, our ability to attract and retain customers could be harmed.
We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. To compete successfully, we must design, develop, market and sell new or enhanced products that provide increasingly higher levels of performance, capacity and reliability and that meet the expectations of our customers, which is a complex and uncertain process. We believe that a critical contributorwe must continue to dedicate significant resources to our success has beenresearch and development efforts, and innovative business models such as Pure as-a-Service, to maintain or expand our company culture, whichcompetitive position. Our investments may take longer to generate revenue or may generate less revenue than we believe fosters innovation, creativity, teamwork, passion for customers and focus on execution, as well as facilitating critical knowledge transfer and knowledge sharing. In particular, we believe thatanticipate. The introduction of new products by our competitors, or the difference betweenemergence of alternative technologies or industry standards could render our sales, support and engineering cultures, relative to those of incumbent vendors, is a key competitive advantage and differentiator for our customers and partners. existing or future products obsolete or less competitive.
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As we growintroduce new or enhanced products, we must successfully manage product launches and change, we may find it difficulttransitions to maintain these important aspects of our company culture, which could limit our ability to innovate and operate effectively. Any failure to preserve our culture could also negatively affect our ability to retain and recruit personnel, continue to perform at current levels or execute on our business strategy.
Because our long-term success depends, in part, on our ability to expand the salesnext generations of our products and encourage our customers to customers located outsideadopt new products and features. If we are not able to successfully manage the development and release of the United States, our business is susceptible to risks associated with international operations.
We maintain operations outside of the United States. We have been expanding and intend to continue to expand these operations in the future. We have relatively limited experience operating at significant scale in foreign jurisdictions. This increases the risk that our international expansion efforts may not be as successful as anticipated. In addition, conducting and expanding international operations subjects us to new risks that we do not generally face in the United States. These include:
exposure to foreign currency exchange rate risk;
difficulties in collecting payments internationally, and managing and staffing international operations;
establishing relationships with channel partners in international locations;
the increased travel, infrastructure and legal compliance costs associated with international locations;
the burdens of complying with a wide variety of laws associated with international operations, including taxes and customs;
significant fines, penalties and collateral consequences if we or our partners fail to comply with anti-bribery laws;
heightened risk of improper, unfair or corrupt business practices in certain geographies;
potentially adverse tax consequences, including repatriation of earnings;


increased financial accounting and reporting burdens and complexities;
political, social and economic instability abroad, terrorist attacks and security concerns in general; and
reduced or varied protection for intellectual property rights in some countries.
The occurrence of any one of these risks could negatively affect our international operations and, consequently,enhanced products, our business, operating results and financial condition generally.could be harmed. Similarly, if we fail to introduce new or enhanced products, such as new or improved software features, that meet our customers' needs in a timely or cost-effective fashion, we may lose market share and our operating results could be adversely affected.
The sales pricesIf we fail to execute our transition to subscription offerings successfully, our revenues and results of operation may be harmed.
We are now offering all of our products and services may fluctuate or decline, which may reduce our gross profits and adversely impact our financial results.
The sales prices for our products and services may fluctuate or decline for a variety of reasons, including competitive pricing pressures, discounts, cost of components, a change in our mix of products and services, and the introduction of competing products or services or promotional programs. Competition continues to increase in the markets in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors with more diverse product and service offerings may reduce the price of products or services that compete with ours or may bundle them with other products and services. Additionally, although we price our products and services predominantly in U.S. dollars, currency fluctuations in certain countries and regions may negatively impact actual prices that partners and customers are willing to pay in those countries and regions. Furthermore, we anticipate that the sales prices for our products will decrease over product life cycles. We cannot assure investors that we will be successful in developing and introducing new offerings with enhanced functionality on a timelysubscription basis, or thatincluding our hardware and software products through Pure as-a-Service and Cloud Data Services. These business models are relatively new product and services offerings, if introduced, will enable us to maintain or improve our gross margins and achieve profitability.
We derive the majority of our revenue from a single family of products, and a decline in demand for these products would cause our revenue to grow more slowly or to decline.
Our FlashArray family of products has historically accounted for the majority of our revenuestorage market and will continue to comprise a significant portion of our revenue for the foreseeable future. As a result, our revenue could be reduced by:
the failure of our current products to achieve broad market acceptance;
any decline or fluctuation in demand for our products, whether as a result of product obsolescence, technological change, customer budgetary constraints or other factors;
the introduction of competing productsevolve, and technologies that replace or substitute, or represent an improvement over, our products; and
our inability to release enhanced versions of our products, including any related software, on a timely basis.
If the market for all-flash storage products grows more slowly than anticipated or if demand for our products declines, we may not be able to increasecompete effectively, drive continued revenue growth or maintain the profitability with these business models. These business models also require different accounting of our customer transactions, such as changing how we recognize revenue, cost of revenue, and capitalize commissions, among other things. Continued market acceptance of subscription offerings will be dependent on our ability to create a seamless customer experience and to optimally price our products in light of marketplace conditions, our costs and customer demand. Subscription offerings could subject us to increased risk of liability related to the provision of services as well as cause us to incur significant operational, technical, legal or achieveother costs. Additionally, the subscription models offered by us and maintainour competitors may unfavorably impact the pricing of and demand for our on-premise offerings, which could reduce our revenues and profitability. If we do not successfully execute our business strategy, which includes subscription offerings, or anticipate the needs of our customers, our financial results could be negatively impacted.
Our products are highly technical and may contain undetected defects, which could cause data unavailability, loss or corruption that might, in turn, result in liability to our customers and harm to our reputation and business.
Our products are highly technical and complex and are often used to store information critical to our customers’ business operations. Our products may contain undetected errors, defects or security vulnerabilities that could result in data unavailability, loss, corruption or other harm to our customers. Some errors in our products may only be discovered after they have been installed and used by customers. Any errors, defects or security vulnerabilities discovered in our products after commercial release could result in a loss of revenue, or delay in revenue recognition, injury to our reputation, a loss of customers or increased service and warranty costs, any of which could adversely affect our business and operating results. In addition, errors or failures in the products of third-party technology vendors may be attributed to us and may harm our reputation.
We could face claims for product liability, tort or breach of warranty. Many ofWe may not be able to enforce provisions in our contracts with customers contain provisions relating to warranty disclaimers and liability limitations, which may be difficult to enforce.limitations. Defending a lawsuit, regardless of its merit, would be costly and mightcould divert management’s attention and adversely affect the market’s perception of us and our products. Our business liability insurance coverage could provemay be inadequate with respect to a claim and future coverage may not be unavailableavailable on acceptable terms or at all. These product-related issues could result in claims against us, and our business, operating results and financial condition could be harmed.


Our brand name and our business may be harmed by the marketing strategies of our competitors.
Because of the early stage of our business, we believe that building and maintaining brand recognition and customer goodwill is critical to our success. Our efforts in this area have, on occasion, been hampered by the marketing efforts of our competitors, which have included negative or misleading statements about us and our products. If we are unable to effectively respond to the marketing efforts ofensure that our competitors and protect our brand and customer goodwill now or in the future, our business will be adversely affected.
Our products must interoperate with third party operating systems, software applications and hardware, and if we are unable to devote the necessary resources to ensure that our products interoperate with such software and hardware, we may lose or fail to increase our market share and may experience reduced demand for our products.share.
Our products must interoperate with our customers’ existing infrastructure, specifically their networks, servers, software and operating systems, which may be manufacturedare offered by a wide variety of vendors. When new or updated versions of these software operating systems or applications are introduced, we must sometimesmay need to develop updated versions of our software so that our products willcontinue to interoperate properly. For example, our Pure1 cloud-based management and support includes connectors to virtualization platforms, allowing our customers to manage our products within native management tools, such as VMware and OpenStack. We may not deliver or maintain interoperability quickly, cost-effectively or at all. Theseall as these efforts require capital investment and engineering resources. If we fail to maintain compatibility of our products with these infrastructure components, our customers may not be able to fully utilize our products, and we may, among other consequences, lose or fail to increase our market share and experience reduced demand for our products, which may harm our business, operating results and financial condition.
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Our products must conform to industry standards in order to be accepted by customers in our markets.
Generally, our products comprise only a part of a data center.an IT environment. The servers, network, software and other components and systems of a data centerdeployed by our customers must comply with established industry standards in order to interoperate and function efficiently together. We depend on companies that provide other systems in a data centerthis ecosystem to conform to prevailing industry standards. Often, theseThese companies are often significantly larger and more influential in driving industry standards than we are. Some industry standards may not be widely adopted or implemented uniformly and competing standards may emerge that may be preferred by our customers. If larger companies do not conform to the same industry standards that we do, or if competing standards emerge, market acceptancesales of our products could be adversely affected, which may harm our business.
Our ability to successfully market and sell our products is dependent in part on ease of use and the quality of our support offerings, and any failure to offer high-quality installation and technical support could harm our business.
Once our products are deployed withinby our customers’ data centers,customers, customers depend on our support organization to resolve technical issues relating to our products. Our ability to provide effective support is largely dependent on our ability to attract, train and retain qualified personnel, as well as to engage with qualified support partners that provide a similar level of customer support. In addition, our sales process is highly dependent on our product and business reputation and on recommendations from our existing customers. Although our products are designed to be interoperable with existing servers and systems, we may need to provide customized installation and configuration support to our customers before our products become fully operational in their environments. Any failure to maintain or a market perception that we do not maintain, high-quality installation and technical support could harm our reputation, our ability to sell our products to existing and prospective customers and our business.


We rely on contract manufacturers to manufacture our products, and if we fail to manage our relationshiprelationships with our contract manufacturers successfully, our business could be negatively impacted.
We rely on a limited number of contract manufacturers to manufacture our products. Our reliance on contract manufacturersproducts, which reduces our control over the assembly process and exposes us to risks, such as reduced control over quality assurance, costs and product supply. If we fail to manage our relationships with these contract manufacturers effectively, or if these contract manufacturers experience delays, disruptions, capacity constraints or quality control problems, our ability to timely ship products to our customers couldwill be impaired, potentially on short notice, and our competitive position, reputation and reputationfinancial results could be harmed. If we are required, to, for whatever reason, to change contract manufacturers or assume internal manufacturing operations, we may lose revenue, incur increased costs and damage our customer relationships. Qualifying a new contract manufacturer and commencing production is expensive and time-consuming. We may need to increase our component purchases, contract manufacturing capacity and internal test and quality functions if we experience increased demand. The inability of our contract manufacturers to provide us with adequate supplies of high-quality products could cause a delay in our order fulfillment, and our business, operating results and financial condition may be harmed.
We rely on a limited number of suppliers, and in some cases single-source suppliers, and any disruption or termination of theseour supply arrangements could delay shipments of our products and could harm our relationships with current and prospective customers.
We rely on a limited number of suppliers and, in some cases, on single-source suppliers, for several key components of our products, and we have not generally entered into agreements for the long-term purchase of these components. For example, the CPUs utilized in our products are supplied by Intel Corporation (Intel), and neither we nor our contract manufacturers have an agreement with Intel for the procurement of these CPUs. Instead, we purchase the CPUs either directly from Intel or through a reseller on a purchase order basis. Intel or its resellers could stop selling to us at any time or could raise their prices without notice. While we actively monitor and manage our supply chain, we cannot anticipate the potential impact that new or current restrictions due to COVID-19 may have on the manufacturing and shipment of our products.
This reliance on a limited number of suppliers and the lack of any guaranteed sources of supply exposes us to several risks, including:
•the inability to obtain an adequate supply of key components, including solid-state drives;flash;
•price volatility for the components of our products;
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•failure of a supplier to meet our quality or production requirements;
•failure of a supplier of key components to remain in business or adjust to market conditions; and
•consolidation among suppliers, resulting in some suppliers exiting the industry, or discontinuing the manufacture of components or increasing the price of components.
Further, some of the components in our products are sourced from component suppliers outside the United States, including from China. The portion of our products that are sourced outside the United States may subject us to additional logistical risks or risks associated with complying with local rules and regulations in foreign countries. Significant changes to existing international trade agreements could lead to sourcing or logistics disruption resulting from import delays or the imposition of increased tariffs on our sourcing partners. For example, there have been discussions regarding potential significant changes to U.S. trade policies, legislation, treaties and tariffs, and the United States and Chinese governments have announced import tariffs by both countries. If any new legislation and/or regulations are implemented, if existing trade agreements are renegotiated or terminated, or if tariffs are imposed on foreign-sourced or U.S. goods, it may be inefficient and expensive for us to alter our business operations in order to adapt to or comply with such changes. Such operational changes could have a material adverse effect on our business, financial condition, results of operations or cash flows.
As a result of these risks, we cannot assure investors that we will be able to obtain enougha sufficient supply of these key components in the future or that the cost of these components will not increase. If our supply of components is disrupted or delayed, or if we need to replace our existing suppliers, there can be no assurance that additional components will be available when required or that components will be available on terms that are favorable to us, which could extend our lead times, increase the costs of our components and harm our business, operating results and financial condition. Even if we are successful in growing our business, weWe may not be able to continue to procure components at reasonable prices, which may require us to enter into longer-term contracts with component suppliers to obtain these components at competitive prices. ThisAny of the foregoing disruptions could increase our costs and decrease our gross margins, harming our business, operating results and financial condition.
ManagingIf we do not manage the supply of our products and their components efficiently, our results of operation could be adversely affected.
Managing the supply of our products and underlying components is complex. Insufficient supply and inventory may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.
Our third-party contract manufacturers procure components and build our products based on our forecasts, and we generally do not hold inventory for a prolonged period of time. These forecasts are based on estimates of future demand for our products, which are in turn based on historical trends and analyses from our sales and marketing organizations, adjusted for overall market conditions. In order to reduce manufacturing lead times and plan for adequate component supply, from time to time we may issue forecastsorders for components and products that are non-cancelable and non-returnable. Our inventory management systems and related supply chain visibility tools may be inadequate to enable us to make accurate forecasts and effectively manage the supply of our products and components. We have, in the past, had to write off inventory in connection with transitions to new product models. If we ultimately determine that we have excess supply, we may have to reduce our prices and write down or write off excess or obsolete inventory,


which in turn could result in lower gross margins. Alternatively, insufficient supply levels may lead to shortages that result in delayed revenue, reduced product margins or loss of sales opportunities altogether. If we are unable to effectively manage our supply and inventory, our results of operations could be adversely affected.
Risks Related to Our Operating Results or Financial Condition
We have experienced growth in prior periods, and we may not be able to sustain future growth effectively or at all.
We have significantly expanded our overall business, customer base, headcount, channel partner relationships and operations in prior periods, and we anticipate that we will continue to expand and experience growth in future periods. For example, we delivered year-over-year revenue growth of 2% for fiscal 2021 and our headcount increased from over 2,800 to over 3,400 employees at the end of fiscal 2019 to the end of fiscal 2020, and to over 3,800 employees at the end of fiscal 2021. Our future operating results will depend to a large extent on our ability to successfully sustain our growth our anticipated expansion. To sustain and manage our growth successfully, we believe that we must, among other things, effectively allocate resources and operate our business across a wide range of priorities.
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We expect that our future growth will continue to place strain on our managerial, administrative, operational, financial and other resources. We will incur costs associated with this future growth prior to realizing the anticipated benefits, and the return on these investments may be lower, may develop more slowly than we expect or may never materialize. Investors should not consider our revenue growth in prior quarterly or annual periods as indicative of our future performance. In future periods, we may not achieve similar percentage revenue growth rates as we have achieved in some past periods. If we are unable to maintain adequate revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability.If we are unable to manage our growth successfully, we may not be able to take advantage of market opportunities or release new products or enhancements in a timely manner, and we may fail to satisfy customers’ expectations, maintain product quality, execute on our business plan or adequately respond to competitive pressures, each of which could adversely impact our growth and affect our business and operating results.
We intend to continue focusing on revenue growth and increasing our market penetration and international presence by investing heavily in our business, which may put pressure on near-term profitability.
We have not achieved profitability for any year since our inception. We incurred a net loss of $282.1 million for fiscal 2021, and we had an accumulated deficit of $1,565.0 million at the end of fiscal 2021. Our operating expenses largely are based on anticipated revenue, and a high percentage of our expenses are, and will continue to be, fixed in the short term. If we fail to adequately increase revenue and manage costs, we may not achieve or maintain profitability in the future. As a result, our business could be harmed, and our operating results could suffer.
Our strategy is to continue investing in marketing, sales, support and research and development. We believe continuing to invest heavily in our business is critical to our future success and meeting our growth objectives. We anticipate that our operating costs and expenses will continue to increase in absolute terms. Even if we achieve or maintain significant revenue growth, we may continue to experience losses, forgoing near-term profitability on a U.S. GAAP basis.
Our gross margins are impacted by a variety of factors and vary from period to period, making them difficult to predict with certainty.
Our gross margins fluctuate from period to period due primarily to product costs, customer mix and product mix. A variety of factors may cause our gross margins to fluctuate and make them difficult to predict, including, but not limited to:
•sales and marketing initiatives, discount levels, rebates and competitive pricing;
•changes in customer, geographic or product mix, including mix of product configurations;
•the cost of components, including flash and DRAM, and freight;
•new product introductions and enhancements with higher product costs;
•excess inventory levels or purchase obligations as a result of changes in demand forecasts or product transitions;
•an increase in product returns, order rescheduling and cancellations;
•the timing of technical support service contracts and contract renewals; and
•inventory stocking requirements to mitigate supply constraints, accommodate unforeseen demand or support new product introductions.
If we are unable to manage these factors effectively, our gross margins may decline, and fluctuations in gross margins may make it difficult to manage our business and achieve or maintain profitability, which could materially harm our business, operating results and financial condition.
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Our operating results may fluctuate significantly, which could make our future results difficult to predict and could cause our operating results to fall below expectations.
Our operating results may fluctuate due to a variety of factors, a portion of which are outside of our control. As a result, comparing our results on a period-to-period basis may not be meaningful.
Factors that are difficult to predict and that could cause our operating results to fluctuate include:
•the timing and magnitude of orders, shipments and acceptance of our products in any quarter, including product returns, order rescheduling and cancellations by our customers;
•fluctuations or seasonality in demand and prices for our products;
•our ability to control the costs of the components we use or to timely adopt subsequent generations of components;
•disruption in our supply chains, component availability and related procurement costs;
•reductions in customers’ budgets for IT purchases;
•changes in industry standards in the data storage industry;
•our ability to develop, introduce and ship new products and product enhancements that meet customer requirements and to effectively manage product transitions;
•changes in the competitive dynamics of our markets, including new entrants or discounting of product prices;
•our ability to control costs, including our operating expenses;
•the impact of adverse economic conditions and the impact of public health epidemics or pandemics, such as the COVID-19 pandemic; and
•future accounting pronouncements and changes in accounting policies.
The occurrence of any one of these factors could negatively affect our operating results in any particular quarter.
The sales prices of our products and services may fluctuate or decline, which may reduce our gross profits, revenue growth, and adversely impact our financial results.
The sales prices of our products and services may fluctuate or decline for a variety of reasons, including competitive pricing pressures, discounts, cost of components, a change in our mix of products and services, and the introduction of competing products or services or promotional programs. Competition continues to increase in the markets in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors may reduce the price of products or services that compete with ours or may bundle them with other products and services. Additionally, although we price our products and services predominantly in U.S. dollars, currency fluctuations in certain countries and regions may negatively impact actual prices that partners and customers are willing to pay in those countries and regions. Furthermore, we anticipate that the prices for our products will decrease over product life cycles. If we are required to decrease our prices to be competitive and are not able to offset this decrease by increases in the volume of sales or the sales of new products with higher margins, our gross margins and operating results could be adversely affected.
We derive the majority of our revenue from our FlashArray products, and a decline in demand for these products would cause our revenue to grow more slowly or to decline.
Our FlashArray products have historically accounted for the majority of our revenue and will continue to comprise a significant portion of our revenue for the foreseeable future, including through our subscription offerings. We have seen slower revenue growth in recent periods, which we believe has largely been driven by the pandemic. As a result, our revenue could be reduced by any decline or fluctuation in demand for these products, regardless of the reason. If demand for our core products slows or declines, we may not be able to increase our revenue or achieve and maintain profitability.
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If we are unable to sell renewals of our maintenance and supportsubscription services to our customers, our future revenue and operating results will be harmed.
Existing customers may not renew their maintenance and supportsubscription services agreements after the initial period and, given our limited operating history,changing customer purchasing preferences, we may not be able to accurately predict our renewal rates. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their available budget and the level of their satisfaction with our storage platform,products, customer support and pricing as compared to that offered by our competitors. If our customers renew their contracts, they may renew on terms that are less economically beneficial to us. We cannot assure investors that our customers will renew their maintenance and support agreements, and ifIf our customers do not renew their agreements or renew on less favorable terms, our revenue may grow more slowly than expected, if at all.
We expect that revenue from maintenance and support agreementssubscription services will increase as a percentage of total revenue over time, and because we recognize this revenue over the term of the relevant contract period, downturns or upturns in sales of maintenance and supportsubscription services are not immediately reflected in full in our results of operations.
We expect thatOur revenue from maintenance and support agreements will increasesubscription services has been increasing as a percentage of total revenue over time. We are also increasing the number of our subscription-based offerings, such as Pure as-a-Service, though it is more difficult to predict the rate at which customers will adopt, and the rate at which our revenue will grow from these new offerings. We recognize maintenance and supportsubscription services revenue ratably over the term of the relevant service period. As a result, much of the maintenance and supportsubscription services revenue we report each quarter is derived from maintenance and support agreements that we sold in prior quarters. Consequently, a decline in new or renewed maintenance and supportsubscription services agreements in any one quarter will not be fully reflected in revenue in that quarter but will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales of maintenance and supportsubscription services is not reflected in full in our results of operations until future periods. Also, itIt is also difficult for us to rapidly increase our maintenance and supportsubscription services revenue through additional sales in any period, as revenue from renewals must be recognized ratably over the applicable service period.
Adverse economic conditionsWe may require additional capital to support business growth, and this capital might not be available on acceptable terms, or reduced data center spendingat all.
We intend to continue to make investments to support our business growth and may adversely impactrequire additional funds to support business initiatives, including the need to develop new products or enhance our revenuesexisting products, enhance our operating infrastructure and profitability.
Our operationsacquire complementary businesses and performance dependtechnologies. Accordingly, we may need to engage in part on worldwide economic conditionsequity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our stockholders could suffer significant dilution, and the impact these conditionsany new equity securities we issue could have on levelsrights, preferences and privileges superior to those of spending on data center technology. Global economic uncertainty and political and fiscal challengesholders of our common stock. Any debt financing we undertake in the United Statesfuture could involve additional restrictive covenants relating to our capital raising activities and abroadother financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to support our business growth and to respond to business challenges could adversely impact data center spending. Our business depends onbe significantly limited and our prospects and financial condition could be harmed.
We are exposed to the overall demand for data center infrastructure and on the economic healthcredit risk of some of our currentcustomers, which could harm our business, operating results and prospective customers. Weak economic conditions, or a reductionfinancial condition.
Most of our sales are made on an open credit basis. We monitor individual customer payment capability when we grant open credit arrangements and may limit these open credit arrangements based on perceived creditworthiness. We also maintain allowances we believe are adequate to cover exposure for doubtful accounts. Although we have programs in data center spending, would likely adversely impactplace that are designed to monitor and mitigate these risks, we cannot assure investors these programs will be effective in managing our credit risks, especially as we expand our business internationally. If we are unable to adequately control these risks, our business, operating results and financial condition could be harmed.
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Risks Related to Our Operations
If we are unable to attract, motivate and retain sales, engineering and other key personnel, including our management team, we may not be able to increase our revenue and our business, operating results and financial condition could be harmed.
Our ability to increase our revenue depends on our ability to attract, motivate, and retain qualified sales, engineering and other key employees, including our management. These positions may require candidates with specific backgrounds in software and the storage industry, and competition for employees with such expertise is intense. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. To the extent that we are successful in hiring to fill these positions, we may need a significant amount of time to train new employees before they are effective and efficient in performing their jobs. From time to time, there may be changes in our management team, which could create short term uncertainty. All of our employees, including members of our management team and executive officers, are generally employed on an at-will basis, which means that they could terminate their employment with us at any time. If we are unable to attract, motivate and retain qualified sales, engineering and other key employees, including our management or if they are unable to work effectively or at all due to the COVID-19 pandemic, our business and operating results could suffer.
If we fail to adequately expand and optimize our sales force, our growth will be impeded.
We need to continue to expand and optimize our sales organization in order to grow our customer base and our business. We plan to continue to expand and train our sales force, both domestically and internationally. We must design and implement effective sales incentive programs, and it can take time before new sales representatives are fully trained and productive. We must adapt our sales processes for new sales and marketing approaches, including those required by our shift to subscription services and the changes resulting from the pandemic. If we are unable to hire, develop and retain qualified sales personnel or if new sales personnel are unable to achieve desired productivity levels in a numberreasonable period of ways, includingtime, we may not be able to realize the expected benefits of these investments or increase our revenue and our business and operating results could suffer.
Our company culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by reducingour culture, and our business may be harmed.
We believe that our company culture has been a critical contributor to our success. Our culture fosters innovation, creativity, teamwork, passion for customers and focus on execution, and facilitates critical knowledge transfer and knowledge sharing. In particular, we believe that the difference between our sales, lengthening sales cyclessupport and lowering pricesengineering cultures and those of incumbent vendors, is a key competitive advantage and differentiator for our productscustomers and services.partners. As we grow and change or are required to adapt to changes in business operations as a result of the COVID-19 pandemic, we may find it difficult to maintain these important aspects of our company culture, which could limit our ability to innovate and operate effectively. Any failure to preserve our culture could also negatively affect our ability to retain and recruit personnel, continue to perform at current levels or execute on our business strategy.
Our long-term success depends, in part, on sales outside of the United States, which subjects us to costs and risks associated with international operations.
We maintain operations outside of the United States, which we have been expanding and intend to continue to expand in the future. As a company headquartered in the United States, conducting and expanding international operations subjects us to costs and risks that we may not generally face in the United States, including:
•exposure to foreign currency exchange rate risk;
•difficulties in collecting payments internationally;
•managing and staffing international operations;
•public health pandemics or epidemics, such as the COVID-19 pandemic;
•establishing relationships with channel partners in international locations;
•increased travel, infrastructure and legal compliance costs associated with international locations;
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•requirements to comply with a wide variety of laws and regulations associated with international operations, including taxes and customs;
•significant fines, penalties and collateral consequences if we or our partners fail to comply with anti-bribery laws;
•heightened risk of improper, unfair or corrupt business practices in certain geographies;
•potentially adverse tax consequences, including repatriation of earnings;
•increased financial accounting and reporting burdens and complexities;
•political, social and economic instability abroad, terrorist attacks and security concerns in general; and
•reduced or varied protection for intellectual property rights in some countries.
The occurrence of any one of these risks could negatively affect our international operations and, consequently, our business, operating results and financial condition generally.
Our international operations, as well as U.S. tax reform, could expose us to potentially adverse tax consequences.
The U.S. Tax law changes enacted through the Tax Cuts and Jobs Act (the Tax Act) in December 2017 and The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020, are subject to further interpretations from the U.S. federal and state governments and regulatory organizations. Such interpretations could have a material adverse effect on our cash tax liabilities, results of operations, and financial condition.
We generally conduct our international operations through wholly owned subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Given the passage of the Tax Act and other global tax developments, we continue to evaluate our corporate structure and intercompany relationships. Future changes to U.S. and global tax laws may adversely impact our effective tax rate.
Our intercompany relationships are, and after the implementation of any changes to our corporate structure will continue to be, subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.
Third-party claims that we are infringing theinfringe their intellectual property rights of others, whether successful or not, could subject us tobe costly and time-consuming litigation or require us to obtain expensive licenses, andharm our business could be harmed.business.
There is a substantial amount of intellectual property litigation in the flash-baseddata storage industry, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our technology, including interference or derivation proceedings before the U.S. Patent and Trademark Office. Third parties may assert infringement claims against us based on existing or future intellectual property rights.The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. We have been, and may in the future be, subject to claims that we infringe upon the intellectual property rights of other intellectual property holders, particularly as we grow and face increasing competition.
Any intellectual property rights claim such as the lawsuits brought by EMC Corporation or others, against us or our customers, suppliers, and channel partners, with or without merit, could be time-consuming and expensive to litigate or settle, could divert management’s resources and attention from operating our business and could force us to acquire intellectual property rights and licenses, which may involve substantial royalty payments. Further, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. An adverse determination also


could invalidate our intellectual property rights, and prevent us from manufacturing and offeringselling our products to our customers and may require that we procure or develop substitute products that do not infringe, which could require significant effort and expense. We may not be able to re-engineer our products successfully to avoid infringement, and we may have to seek a license for the infringed technology, which may not be available on reasonable terms or at all, may significantly increase our operating expenses or may require us to restrict our business activities in one or more respects. Even if we were able to obtain a license, it could be non-exclusive, thereby givingwhich may give our competitors access to the same technologies licensed to us. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business. Any of these events could harm our business and financial condition.
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We currently have a number of agreements in effect with our customers, suppliers and channel partners pursuant to which we have agreed to defend, indemnify and hold them harmless our customers, suppliers and channel partners from damages and costs which may arise from theclaims of infringement by our products of third-party patents, trademarks or other proprietary rights. The scope of these indemnity obligations varies but may, in some instances, include indemnification for damages and expenses, including attorneys’ fees. Our insurance may not cover intellectual property infringement claims. A claim that our products infringe a third party’s intellectual property rights could harm our relationships with our customers, deter future customers from purchasing our products and expose us to costly litigation and settlement expenses. Even if we are not a party to any litigation between a customer and a third party relating to infringement claims by our products, an adverse outcome in any such litigation could make it more difficult for us to defend our products against intellectual property infringement claims in any subsequent litigation in which we are a named party. Any of these results could harm our brand, business and financial condition.
The success of our business depends in part on our ability to protect and enforce our intellectual property rights.
We rely on a combination of patent, copyright, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. We have over 7002,000 issued patents and patent applications in the United States and foreign countries. We cannot assure investors that future patents issued to us, if any, will give us the protection that we seek, if at all, or that any patents issued to us will not be challenged, invalidated, circumvented or held to be unenforceable. Our issued patents and anyfuture patents that may issue in the future with respect to pending or future patent applications may not provide sufficiently broad protection or they may not prove to be enforceable. Further, the laws of certain foreign countries do not provide the same level of protection of corporate proprietary information and assets such as intellectual property, trademarks, trade secrets, know-how and records, as the laws of the United States. For instance, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection. As a result, we may encounter significant problems in protecting and defending our intellectual property or proprietary rights abroad.
Changes to the patent lawsintellectual property law in the United States and other jurisdictions could also diminish the value of our patents and patent applications or narrow the scope of our patent protection.protection, among other intellectual property rights. We cannot be certain that the steps we have taken will prevent theft, unauthorized use of our technology or the reverse engineering of our technology.proprietary information and other intellectual property, including technical data, manufacturing processes, data sets or other sensitive information. Moreover, others may independently develop technologies that are competitive to ours or that infringe our intellectual property. Furthermore, any of our trademarks may be challenged by others or invalidated through administrative process or litigation.
Protecting against the unauthorized use of our intellectual property, products and other proprietary rights is expensive and difficult. Litigation may be necessary in the future to enforce or defend our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could result in substantial costs and diversion of management’s resources and attention, either of which could harm our business, operating results and financial condition. Further, many of our current and potential competitors have the ability to dedicate substantially greater resources than us to defendingdefend intellectual property infringement claims and to enforcingenforce their intellectual property rights than we have.rights. Accordingly, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which our products are available. An inability to adequately protect and enforce our intellectual property and other proprietary rights could harm our business and financial condition.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business could be harmed.
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In addition to the protection afforded by patents, we rely on confidential proprietary information, including trade secrets and know-how to develop and maintain our competitive position. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market. We seek to protect our confidential proprietary information, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and collaborators. These agreements are designed to protect our proprietary information; however, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not



be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.

We also seek to preserve the integrity and confidentiality of our proprietary information by maintaining physical security of our premises and physical and electronic security of our IT systems, but it is possible that these security measures could be breached. If any of our confidential proprietary information were to be lawfully obtained or independently developed by a competitor, we may have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could harm our business.
Our use of open source software could impose limitations on our ability to commercialize our products.
We use open source software in our products and expect to continue to use open source software in the future. Although we monitor our use of open source software, the terms of many open source licenses have not been interpreted by U.S. or foreign courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our products. From time to time, we may face claims from third parties claiming ownership of, or demanding release of, the open source software or derivative works that we have developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to make our software source code freely available, seek licenses from third parties in order to continue offering our products for certain uses or cease offering the implicated solutions unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may be required to discontinue providing some of our software in the eventif re-engineering cannot be accomplished on a timely basis, any of which could harm our business, operating results and financial condition.
System security risks, data protection breaches and cyber-attacks on our systems or products could compromise our proprietary information (or information of our customers), disrupt our internal operations and harm public perception of our products, which could cause our business and reputation to suffer, create additional liabilities and adversely affect our financial results and stock price.
In the ordinary course of business, we store sensitive data on our internal systems, networks and servers, which may include intellectual property, our proprietary business information and that of our customers, suppliers and business partners and sales data, which may include personally identifiable information. Additionally, we design and sell products that allow our customers to store our customers’ data. The security of our own networks and the intrusion protection features of our product are both critical to our operations and business strategy.
We devote significant resources to network security, data encryption and other security measures to protect our systems and data, but these security measures cannot provide absolute security. For example, we use encryption and authentication technologies to secure the transmission and storage of data and prevent third party access to data or accounts, but these security measures are subject to third-party security breaches, employee error, malfeasance, faulty password management or other irregularities. Any destructive or intrusive breach of our internal systems could result in the information stored on our networks being accessed, publicly disclosed, lost or stolen. Additionally, an effective attack on our products could disrupt the proper functioning of our products, allow unauthorized access to sensitive, proprietary or confidential information of ours or our customers, disrupt or temporarily interrupt customers’ operations or cause other destructive outcomes, including the theft of information sufficient to engage in fraudulent transactions. The risk that these types of events could seriously harm our business is likely to increase as we expand our network of channel partners, resellers and authorized service providers and operate in more countries. The economic costs to us to eliminate or alleviate cyber or other security problems, viruses, worms, malicious software systems and security vulnerabilities could be significant and may be difficult to anticipate or measure because the damage may differ based on the identity and motive of the programmer or hacker, which are often difficult to identify. If any of these types of security breaches, actual or perceived, were to occur and we were to be unable to protect sensitive data, our relationships with our business partners and customers could be materially damaged, our reputation and brand could be materially harmed, use of our products could decrease and we could be exposed to a risk of loss or litigation and possible liability.


We may further expand through acquisitions of, or investments in, other companies, each of which may divert our management’s attention, resulting in additional dilution to our stockholders and consumption of resources that are necessary to sustain and grow our business.
Our business strategy may, from time to time, include acquiring complementary products, technologies or businesses. We also may enter into relationships with other businesses in order to expand our product offerings, which could involve preferred or exclusive licenses, additional channels of distribution or discount pricing or investments in other companies. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these transactions may be subject to third-party or government approvals, which are beyond our control. Consequently, we can make no assurance that these transactions, once undertaken and announced, will close.
These kinds of acquisitions or investments may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired business choose not to work for us, and we may have difficulty retaining the customers of any acquired business. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for development of our business. Any acquisition or investment could expose us to unknown liabilities. Moreover, we cannot assure investors that the anticipated benefits of any acquisition or investment would be realized. In connection with these types of transactions, we may issue additional equity securities that would dilute our stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to repay, incur large charges or substantial liabilities, encounter difficulties integrating diverse business cultures and become subject to adverse tax consequences, substantial depreciation or deferred compensation charges. These challenges related to acquisitions or investments could harm our business and financial condition.
We may require additional capital to support business growth, and this capital might not be available on acceptable terms, or at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new products or enhance our existing products, enhance our operating infrastructure and acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing in the future could involve additional restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to support our business growth and to respond to business challenges could be significantly limited and our prospects and financial condition could be harmed.
We are exposed to the credit risk of some of our customers, which could harm our business, operating results and financial condition.
Most of our sales are made on an open credit basis. As a general matter, we monitor individual customer payment capability when we grant open credit arrangements and may limit these open credit arrangements based on perceived creditworthiness. We also maintain allowances we believe are adequate to cover exposure for doubtful accounts. Although we have programs in place that are designed to monitor and mitigate these risks, we cannot assure investors these programs will be effective in managing our credit risks, especially as we expand our business internationally. If we are unable to adequately control these risks, our business, operating results and financial condition could be harmed.
Sales to U.S. federal, state and local governments are subject to a number of challenges and risks that may adversely impact our business.
Sales to U.S. federal, state and local governmental agencies may in the future account for a significant portion of our revenue. Sales to such government entities are subject to the following risks:
selling to governmental agencies can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that such efforts will generate a sale;
government certification requirements applicable to our products may change and in doing so restrict our ability to sell into the U.S. federal government sector until we have attained the revised certification;


government demand and payment for our products and services may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products and services;
we sell our products to governmental agencies through our channel partners, and these agencies may have statutory, contractual or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our future results of operations;
governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our products, which would adversely impact our revenue and results of operations, or institute fines or civil or criminal liability if the audit uncovers improper or illegal activities; and
governments may require certain products to be manufactured in the United States and other relatively high-cost manufacturing locations, and we may not manufacture all products in locations that meet these requirements, affecting our ability to sell these products to governmental agencies.
We need to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, and the failure to do so could have a material adverse effect on our business and stock price.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. We are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or Section 404. Our independent registered public accounting firm also needs to attest to the effectiveness of our internal control over financial reporting. We continue to take steps to develop our finance and accounting function, such as continuing to hire additional personnel and to implement additional tools and improvements to policies and procedures. Our compliance with Section 404 may require us to continue to incur substantial expense and expend significant management efforts. If we are unable to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm notes or identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our Class A common stock could decline and we could be subject to sanctions or investigations by the SEC, or other regulatory authorities, which would require additional financial and management resources.
Our international operations, as well as U.S. tax reform, could expose us to potentially adverse tax consequences.
The Tax Cuts and Jobs Act (the Tax Act) was signed into law on December 22, 2017. The new legislation decreases the U.S. corporate federal income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also includes a number of other provisions including the elimination of loss carrybacks and limitations on the use of future losses, limitations on the deductibility of executive compensation, limitation or modification on the deductibility of certain business expenses, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and the introduction of a base erosion and anti-abuse tax. In the absence of guidance on various uncertainties and ambiguities in the application of these provisions, we will use what we believe are reasonable interpretations and assumptions in applying the Tax Act, but it is possible that the IRS could issue subsequent guidance or take positions on audit that differ from our prior interpretations and assumptions, which could have a material adverse effect on our cash tax liabilities, results of operations, and financial condition.
We generally conduct our international operations through wholly-owned subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Given the passage of the Tax Act and other global tax developments, we continue to evaluate our corporate structure and intercompany relationships. Future changes to U.S. and global tax laws may adversely impact our effective tax rate.
Our intercompany relationships are, and after the implementation of any changes to our corporate structure will continue to be, subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.


Failure to comply with governmental laws and regulations could harm our business.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than in the United States. For example, the European Union has adopted certain directives to facilitate the recycling of electrical and electronic equipment sold in the European Union, including the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment directive and the Waste Electrical and Electronic Equipment directive.
Changes in applicable laws, regulations and standards could harm our business, operating results and financial condition. For example, we have a presencebeen subject to the EU General Data Protection Regulation, or GDPR, since May 2018 and to the California Consumer Privacy Act (CCPA) since January 2020. These and potentially other future privacy regulations may require us to make further changes to our policies and procedures in the European Union, including in United Kingdom, and ourfuture beyond what we have already done. Our business could be impacted, to some extent, by the United Kingdom's exit from the European Union and related changes in law and regulation. We made changes to our data protection compliance program in relation to data privacy regulations and will continue to monitor the implementation and evolution of global data protection regulations, but if we are not compliant with such privacy regulations, we may be subject to significant fines and our business may be harmed. In addition, the European Union has adoptedCCPA places additional requirements on the General Data Protection Regulation, whichhandling of personal data and is scheduledcurrently subject to go into effect in May 2018a revision and contains numerous requirementsupdate process. The potential effects of this legislation are far-reaching and changes, including more robust obligations onmay require us to modify our data processorsprocessing practices and heavier documentation requirements for data protection compliance programs by companies.policies and to incur substantial costs and expenses. Customers may choose to implement technological solutions to comply with such regulations that impact the performance and competitiveness of our products and solutions.
Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results and financial condition could be harmed. Even the perception of privacy concerns, whether or not valid, may harm our reputation and inhibit competitiveness and adoption of our products by current and future customers. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.
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Governmental regulations affecting the import or export of products could negatively affect our revenue.
The U.S. and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of some technologies, especially encryption technology. From time to time, governmental agencies have proposed additional regulation of encryption technology, such as requiring the escrow of imports or exports. If we fail to obtain required import or export approval for our products or its various components, our international and domestic sales could be harmed and our revenue may be adversely affected. In many cases, we rely on vendors and channel partners to handle logistics associated with the import and export of our products, so our visibility and control over these matters may be limited. In addition, failure to comply with such regulations could result in penalties, costs and restrictions on export privileges, which could harm our business, operating results and financial condition.
If we or our products suffer a cybersecurity or other security breach, we may lose customers and incur significant liabilities.
In the ordinary course of business, we store sensitive data on our internal systems, networks and servers, which may include intellectual property, our proprietary business information and that of our customers, suppliers and business partners and sales data, which may, on occasion, include personally identifiable information. Additionally, we design and sell products that allow our customers to store their data. The security of our own networks and the intrusion protection features of our products are both critical to our operations and business strategy.
We devote significant resources to network security, data encryption and other security measures to protect our systems and data, but these security measures cannot provide absolute security. While we use encryption and authentication technologies to secure the transmission and storage of data and prevent third-party access to data or accounts, these security measures are subject to third party security breaches, employee error, malfeasance, faulty password management or other irregularities. Any destructive or intrusive breach of our internal systems could result in the information stored on our networks being accessed, publicly disclosed, lost or stolen.
Additionally, an effective attack on our products could disrupt the proper functioning of our products, allow unauthorized access to sensitive, proprietary or confidential information of ours or our customers, disrupt or temporarily interrupt our and our customers’ operations or cause other destructive outcomes, including the theft of information sufficient to engage in fraudulent transactions. The risk that these types of events could seriously harm our business is likely to increase as we expand our network of channel partners, resellers and authorized service providers and operate in more countries. The economic costs to us to eliminate or alleviate cyber or other security problems, viruses, worms, malicious software systems and security vulnerabilities could be significant and may be difficult to anticipate or measure because the damage may differ based on the identity and motive of the programmer or hacker, which are often difficult to identify. If any of these types of security breaches were to occur and we were unable to protect sensitive data, our relationships with our business partners and customers could be materially damaged, our reputation and brand could be materially harmed, use of our products could decrease and we could be exposed to a risk of loss or litigation and possible liability.
We may acquire other businesses which could require significant management attention, disrupt our business, dilute stockholder value, and adversely affect our operating results.
We may, from time to time, acquire complementary products, technologies or businesses, such as our acquisitions of Portworx in October 2020 and Compuverde AB in April 2019. We also may enter into relationships with other businesses in order to expand our product offerings, which could involve preferred or exclusive licenses, additional channels of distribution or discount pricing or investments in other companies. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these transactions may be subject to third-party or government approvals, which are beyond our control. Consequently, we can make no assurance that these transactions, once undertaken and announced, will close.
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These kinds of acquisitions or investments may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of acquired companies, particularly if the key personnel of the acquired business choose not to work for us, and we may have difficulty retaining the customers of any acquired business. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for development of our business. Any acquisition or investment could expose us to unknown liabilities. Moreover, we cannot assure investors that the anticipated benefits of any acquisition or investment will be realized. In connection with these types of transactions, we may issue additional equity securities that would dilute our stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to repay, incur large charges or substantial liabilities, encounter difficulties integrating diverse business cultures and become subject to adverse tax consequences, substantial depreciation or deferred compensation charges. These challenges related to acquisitions or investments could harm our business and financial condition.
Risks Related to Our Credit Facility and Notes
Restrictive covenants in the agreement governing our senior secured revolving credit facility may restrict our ability to pursue business strategies.
In August 2020, we entered into a Credit Agreement with a consortium of financial institutions and lenders that provides for a five-year, senior secured revolving credit facility of $300.0 million (Credit Facility). We have borrowed $250.0 million under this Credit Facility. We could repay and re-borrow funds under this Credit Facility at any time, subject to customary borrowing conditions, for general corporate purposes and working capital.
The agreement governing our senior secured revolving Credit Facility limits our ability, among other things, to: incur additional secured indebtedness; sell, transfer, license or dispose of assets; consolidate or merge; enter into transactions with our affiliates; and incur liens. In addition, our senior secured revolving Credit Facility contains financial and other restrictive covenants that limit our ability to engage in activities that may be in our long term best interest, such as, subject to permitted exceptions, making capital expenditures in excess of certain thresholds, making investments, loans and other advances, and prepaying any additional indebtedness while our indebtedness under our senior secured revolving Credit Facility is outstanding. Our failure to comply with financial and other restrictive covenants could result in an event of default, which if not cured or waived, could result in the lenders requiring immediate payment of all outstanding borrowings or foreclosing on collateral pledged to them to secure the indebtedness.
We may not have the ability to raise the funds necessary to settle conversions of the Notes or to repurchase the Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Notes.
Holders of the Notes will have the right to require us to repurchase all or a portion of their Notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest. In addition, if a make-whole fundamental change (as defined in the indenture for the Notes) occurs prior to the maturity date of the Notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its Notes in connection with such make-whole fundamental change. Upon a conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or pay cash with respect to Notes being converted.
In addition, our ability to repurchase or to pay cash upon conversion of the Notes may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase the Notes at a time when the repurchase is required by the indenture governing the Notes or to pay cash upon conversion of the Notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or to pay cash upon conversion of the Notes.
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Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the amounts payable under the Notes, depends on our future performance, which is subject to the risks of earthquakes, floodseconomic, financial, competitive and other natural catastrophic events,factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to interruption by man-made factorsgenerate such cash flow, we may be required to adopt one or more alternatives, such as computer virusesselling assets, restructuring debt or terrorism.obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
We may still incur substantially more debt or take other actions that would diminish our ability to make payments on the Notes when due.
We and our suppliers have operationssubsidiaries may incur substantial additional debt in locations, including our headquarters in California, that arethe future, subject to earthquakes, floods and other natural catastrophic events, such as severe weather and geological events,the restrictions contained in our future debt instruments, some of which could disrupt our operations or the operations of our customers and suppliers. Our customers affected by a natural disaster could postpone or cancel orders of our products, which could negatively impact our business. Moreover, should any of our key suppliers fail to deliver components to us as a result of a natural disaster, we may be unable to purchase these components in necessary quantitiessecured debt, like the Credit Facility. We are not restricted under the terms of the indenture governing the Notes from incurring additional debt, securing existing or may be forced to purchase components infuture debt, recapitalizing our debt or taking a number of other actions that could have the open market at significantly higher costs. We may also be forced to purchase components in advanceeffect of our normal supply chain demand to avoid potential market shortages. We may not have adequate business interruption insurance to compensate us for losses due to a significant natural disaster or due to man-made factors. Any natural catastrophic events may also prevent our employees from being able to reach our offices in any jurisdiction around the world, and therefore impedediminishing our ability to conduct businessmake payments on the Notes when due. Furthermore, the indenture prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the Notes and the indenture. These and other provisions in the indenture could deter or prevent a third party from acquiring us even when the acquisition may be favorable to holders of the Notes.
The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.
If the conditional conversion feature of the Notes is triggered, holders of the Notes will be entitled to convert the Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than by paying cash in lieu of delivering any fractional share), we may settle all or a portion of our conversion obligation in cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as usual.a current rather than long-term liability, which would result in a material reduction of our net working capital.
The capped call transactions may affect the value of the Notes and our common stock.
In connection with the Notes, we entered into capped call transactions with certain financial institutions (the option counterparties). The capped call transactions are expected generally to reduce the potential dilution upon any conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount upon conversion of the Notes, with such reduction and/or offset subject to a cap.
In connection with establishing their initial hedges of the capped call transactions, the option counterparties and/or their respective affiliates purchased shares of our common stock and/or entered into various derivative transactions with respect to our common stock. This activity could have increased (or reduced the size of any decrease in) the market price of our common stock or the Notes at that time.
In addition, actsthe option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock in secondary market transactions (and are likely to do so during any observation period related to a conversion of terrorismnotes or malicious computer virusesfollowing any repurchase of notes by us on any fundamental change repurchase date or otherwise). This activity could also cause disruptionsor avoid an increase or a decrease in the price of our or our customers’ businessescommon stock or the economy as a whole. ToNotes.
The potential effect, if any, of these transactions and activities on the extent that these disruptions result in delays or cancellationsprice of customer ordersour common stock or the deploymentNotes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our products, our business, operating results and financial condition could be harmed.common stock.
28



Risks Related to Our Common Stock
The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who hold our Class B common stock, including our executive officers, employees and directors and their affiliates, which limits investors’ ability to influence the outcome of important transactions, including a change in control.
Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. Stockholders who hold shares of our Class B common stock, including our executive officers, employees and directors and their affiliates, collectively hold the vast majority of the voting power of our outstanding capital stock. Because of the ten-to-one voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock will therefore be able to control all matters submitted to our stockholders for approval so long as the shares of our Class B common stock represent at least 10% of all outstanding shares of our Class A common stock and Class B common stock. These holders of our Class B common stock may also have interests that differ from investors and may vote in a way with which investors disagree and which may be adverse to investors’ interests. This concentrated control may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their capital stock as part of a sale of our company and might ultimately affect the market price of our Class A common stock.
Future transfers by holders of our Class B common stock will generally result in those shares converting into shares of our Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of shares of our Class B common stock into shares of our Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, Dr. Dietzen and Messrs. Colgrove and Hatfield retain a significant portion of their holdings of our Class B common stock for an extended period of time, they could control a significant portion of the voting power of our capital stock for the foreseeable future. As board members, Dr. Dietzen and Mr. Colgrove each owe a fiduciary duty to our stockholders and must act in good faith and in a manner they reasonably believe to be in the best interests of our stockholders. However, as stockholders, Dr. Dietzen and Messrs. Colgrove and Hatfield are entitled to vote their shares in their own interests, which may not always be in the interests of our stockholders generally.

Substantial sales of shares of our common stock in the future could cause the market price of our common stock to decline.
The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by any of our large stockholders. While volume limitations under Rule 144 under the Securities Act could partially limit sales by directors, executive officers and other affiliates, the market price of the shares of our common stock could decline as a result of sales of a substantial number of our shares in the public market or the perception in the market that the holders of a large number of shares intend to sell or distribute their shares.

The trading price of our Class A common stock has been and may continue to be highly volatile, and an active, liquid, and orderly market for our Class A common stock may not be sustained.
The trading price of our Class A common stock has been, and will likely continue to be, highly volatile. Since shares of our Class A common stock were sold in our initial public offering in October 2015 at a price of $17.00 per share, our closing stock price has ranged from $9.40$8.76 to $22.39,$28.90, through March 1, 2018.18, 2021. Some of the factors, many of which are beyond our control, affecting our volatility may include:
•price and volume fluctuations in the overall stock market from time to time;
•significant volatility in the market price and trading volume of technology companies in general and of companies in our industry;
•actual or anticipated changes in our results of operations or fluctuations in our operating results;
•whether our operating results meet the expectations of securities analysts or investors;
actual•issuance or anticipated changesnew or updated research or reports by securities analysts, including the publication of unfavorable reports or change in the expectationsrecommendation or downgrading of investors or securities analysts;our common stock;
•actual or anticipated developments in our competitors’ businesses or the competitive landscape generally;
•litigation involving us, our industry or both;
•general economic conditions and trends;trends, including the impact of the COVID pandemic;
•major catastrophic events;


•sales of large blocks of our stock; or
•departures of key personnel.
The stock markets in general, and market prices for the securities of technology-based companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. A certain degree of stock price volatility can be attributed to being a newly public company. These broad market and industry fluctuations may adversely affect the market price of our Class A common stock, regardless of our operating performance. In several recent situations where the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock, such as the consolidated class action we currently are defending against.stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our business, operating results and financial condition.
We cannot guarantee that our share repurchase program will enhance shareholder value, and share repurchases could affect the price of our common stock.
In August 2019, our board of directors authorized a $150.0 million share repurchase program, which is being funded from available working capital. The currently authorized program has been substantially completed as of the end of fiscal 2021 and in February 2021 our board of directors authorized a $200.0 million share repurchase program. The repurchase authorization has no fixed end date. Although our board of directors has authorized a share repurchase program, this program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. The share repurchase program could affect the price of our common stock, increase volatility and diminish our cash reserves.
If securities analysts do not publish research or reports about our business, or if they downgrade our stock, the price of our stock could decline.
The trading market for our Class A common stock will likely be influenced by research and reports that securities or industry analysts publish about us or our business. In the event securities or industry analysts cover our company andIf one or more of these analysts downgrades our stock, lowers their price target, or publishes unfavorable or inaccurate research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
29

We have never paid dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result, investors may only receive a return on their investment in our Class A common stock if the market price of our common stock increases.
We will continue to incur increased costs as a result of being a public company.
As a public company, we have incurred and expect to continue to incur significant legal, accounting and other expenses. In addition, new rules implemented by the SEC and New York Stock Exchange, from time to time, require changes in corporate governance practices of public companies. We expect these rules and regulations to continue to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We will continue to incur additional costs associated with our public company reporting requirements. We expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors or as executive officers.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our Class A common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could depress the trading price of our Class A common stock by acting to discourage, delay or prevent a change of control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:
provide for a dual class common stock structure, so that certain stockholders will have significant influence over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets and which could discourage others from initiating any potential merger, takeover or other change of control transaction that other stockholders may view as beneficial;
•establish a classified board of directors so that not all members of our board of directors are elected at one time;


•authorize the issuance of “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt;
•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
•prohibit stockholders from calling a special meeting of our stockholders;
•provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and
•establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder and which may discourage, delay, or prevent a change of control of our company.
Any provision of our amended and restated certificate of incorporation, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. If a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business and financial condition.

30

General Risk Factors
Adverse economic conditions may harm our revenues and profitability.
Our operations and performance depend in part on worldwide economic conditions and the economic health of our current and prospective customers. Global economic uncertainty, civil unrest and political and fiscal challenges in the United States and abroad can arise suddenly and affect the rate of information technology spending and could adversely affect our customers' ability or willingness to purchase our products and services. For example, the global macroeconomic environment could be negatively affected by the growth rate in the economy of the European Union, China, or the United States, trade relations between the United States and China, the impact of public health epidemics or pandemics, such as the COVID-19 pandemic, political uncertainty in the Middle East and other geopolitical events. Additionally, the United Kingdom's exit from the European Union is disruptive and remains subject to the successful conclusion of a final withdrawal agreement between the parties. In the absence of such an agreement, there would be no transitional provisions and any exit from the European Union could lead to adverse economic consequences. Weak economic conditions would likely adversely impact our business, operating results and financial condition in a number of ways, including by reducing sales, lengthening sales cycles and lowering prices of our products and services.
Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events, and to interruption by man-made factors such as computer viruses or terrorism or by the impact of public health epidemics or pandemics, such as the COVID-19 pandemic.
We and our suppliers have operations in locations, including our headquarters in California, that are subject to earthquakes, fires, floods and other natural catastrophic events, such as severe weather and geological events, which could disrupt our operations or the operations of our customers and suppliers. Our customers affected by a natural disaster could postpone or cancel orders of our products, which could negatively impact our business. Moreover, should any of our key suppliers fail to deliver components to us as a result of a natural disaster, we may be unable to purchase these components in necessary quantities or may be forced to purchase components in the open market at significantly higher costs. We may also be forced to purchase components in advance of our normal supply chain demand to avoid potential market shortages. Our business interruption insurance may be insufficient to compensate us for losses due to a significant natural disaster or due to man-made factors. Any natural catastrophic events may also prevent our employees from being able to reach our offices in any jurisdiction around the world, and therefore impede our ability to conduct business as usual.
In addition, man-made factors, such as acts of terrorism or malicious computer viruses, and public health epidemics or pandemics, such as the COVID-19 pandemic, could cause disruptions in our or our customers’ businesses or the economy as a whole. To the extent that these disruptions result in delays or cancellations of customer orders or the deployment of our products, our business, operating results and financial condition could be harmed.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties
Properties.
Our corporate headquarters are located in Mountain View, California. We also maintain offices in multiple locations in the United States and internationally in Africa, Asia, Australia, Europe, and South America, as well as Canada and Mexico. We lease all of our facilities and do not own any real property. We expect to add facilities as we grow our employee base and expand geographically. We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate expansion of our operations.


Item 3. Legal Proceedings.
The information set forth under the "Legal Matters" subheading in Note 58 of our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K is incorporated herein by reference.
In addition, we may from time to time, be involved in various legal proceedings arising from the normal course of business, and an unfavorable resolution of any of these matters could materially affect our future results of operations, cash flows or financial position.
31

Item 4. Mine Safety Disclosures.
Not applicable.

32


PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information for Common Stock
Our Class A common stock, which we refer to as our "common stock", trades publicly on the New York Stock Exchange (NYSE) under the ticker symbol “PSTG.” The following table sets forthWe previously had two classes of common stock outstanding — Class A common stock and Class B common stock. In December 2018, all outstanding shares of our Class B common stock automatically converted into the high and low sales price per sharesame number of shares of our Class A common stock as reported by the NYSE for trading days during the periods indicated:
  High Low
Year ended January 31, 2017    
First Quarter $16.40
 $11.05
Second Quarter $15.20
 $9.62
Third Quarter $15.08
 $11.00
Fourth Quarter $15.14
 $11.09
     
Year ended January 31, 2018    
First Quarter $12.34
 $9.12
Second Quarter $13.88
 $9.81
Third Quarter $16.64
 $12.00
Fourth Quarter $21.23
 $15.81
Ourstock. Prior to such date, our Class B common stock iswas not listed nor traded on any stock exchange.
Holders of Record
As of January 31, 2018,March 18, 2021, there were 1647 holders of record of our Class A common stock. This figure does not include a substantially greater number of “street name” holders or beneficial holders of our common stock whose shares are held of record by banks, brokers and other financial institutions.  As of January 31, 2018, there were approximately 171 stockholders of record of our Class B common stock.
Dividend Policy
We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.
Sale of Unregistered Securities and Use of Proceeds
Unregistered Sales of Equity Securities
Not applicable.
Use of Proceeds
Not applicable.
Purchases of Equity Securities by the Issuer
None.The following table summarizes our stock repurchase activity for the fourth quarter of fiscal 2021 (in thousands except for price per share):

PeriodAverage Price Paid per Share
Total Number of Shares Purchased as Part of Share Repurchase Program (1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Program (1)
November 2 - November 29, 2020$— — $23,616 
November 30 - December 27, 2020$22.79 695 $7,784 
December 28 - January 31, 2021$23.15 336 $16 


(1) In August 2019, our board of directors authorized us to repurchase up to $150.0 million of our outstanding common stock under our share repurchase program. In February 2021, our board of directors authorized additional share repurchases of up to $200.0 million of our outstanding common stock. See "Liquidity and Capital Resources—Share Repurchase Program" included under Part II, Item 7 in this Annual Report.

The following table summarizes our shares of restricted common stock that were delivered by certain employees upon vesting of equity awards to satisfy tax withholding requirements for the fourth quarter of fiscal 2021 (in thousands except for price per share):
PeriodAverage Price per Share DeliveredTotal Number of Shares Delivered to Satisfy Tax Withholding RequirementsApproximate Dollar Value of Shares Delivered to Satisfy Tax Withholding Requirements
November 2 - November 29, 2020$— — $— 
November 30 - December 27, 2020$22.47 186 $4,177 
December 28 - January 31, 2021$— — $— 
33

Trading Plans
Our Insider Trading Policyinsider trading policy permits directors, officers, and other employees covered under the policy to establish, subject to certain conditions and limitations set forth in the policy, written trading plans which are intended to comply with Rule 10b5-1 under the Exchange Act, which permits automatic trading of our common stock of Pure Storage, Inc. or trading of our common stock by an independent person (such as a stockbroker) who is not aware of material, nonpublic information at the time of the trade.
Stock Performance Graph and Cumulative Total Return
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Pure Storage, Inc. under the Securities Act or the Exchange Act.
The following graph compares the cumulative total return to stockholders on our Class A common stock relative to the cumulative total returns of the NYSE Composite Index and NYSE Arca Tech 100 Index.Index for the five years ended January 31, 2021. The graph assumes that $100 (with reinvestment of all dividends) was invested in our Class A common stock and in each index on October 7, 2015, the date our Class A common stock began trading on the NYSE, and its relative performance is tracked through January 31, 2018.2016 and assumes the reinvestment of any dividends. The returns shown are based on historical results and are not intended to suggest future performance.
pstg-20210131_g1.gif

34



Item 6. Selected Financial Data.
The selected consolidated statements of operations data for the years ended January 31, 2016, 2017fiscal 2019, 2020 and 20182021 and the consolidated balance sheet data asat the end of January 31, 2017fiscal 2020 and 20182021 are derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations data for the years ended January 31, 2014fiscal 2017 and 20152018 and the consolidated balance sheet data asat the end of January 31, 2014, 2015fiscal 2017, 2018 and 20162019 are derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K. The selected consolidated financial data below should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this report. Our historical results are not necessarily indicative of the results that may be expected in any future period.
Fiscal Year Ended
Year Ended January 31, 20172018201920202021
2014 2015 2016 2017 2018
(in thousands, except per share data) (in thousands, except per share data)
Consolidated Statements of Operations Data:     
  
  
Consolidated Statements of Operations Data:   
Revenue:     
  
  
Revenue:   
Product$39,228
 $154,836
 $375,733
 $590,001
 $813,985
Product$614,458 $834,454 $1,075,586 $1,238,654 $1,144,098 
Support3,505
 19,615
 64,600
 137,976
 209,034
Subscription servicesSubscription services124,713 190,308 284,238 404,786 540,081 
Total revenue42,733
 174,451
 440,333
 727,977
 1,023,019
Total revenue739,171 1,024,762 1,359,824 1,643,440 1,684,179 
Cost of revenue:     
  
  Cost of revenue:  
Product (1)
19,974
 63,425
 132,870
 194,150
 275,242
Product (1)
194,150 275,242 352,054 362,970 352,987 
Support (1)
4,155
 14,127
 35,023
 58,129
 78,539
Subscription services (1)
Subscription services (1)
58,129 78,539 105,474 146,916 182,268 
Total cost of revenue24,129
 77,552
 167,893
 252,279
 353,781
Total cost of revenue252,279 353,781 457,528 509,886 535,255 
Gross profit18,604
 96,899
 272,440

475,698
 669,238
Gross profit486,892 670,981 902,296 1,133,554 1,148,924 
Operating expenses:     
  
  Operating expenses:  
Research and development (1)
36,081
 92,707
 166,645
 245,817
 279,196
Research and development (1)
245,817 279,196 349,936 433,662 480,467 
Sales and marketing (1)
54,750
 152,320
 240,574
 360,035
 480,030
Sales and marketing (1)
347,695 464,049 584,111 728,022 716,014 
General and administrative (1) (2)
5,902
 32,354
 75,402
 84,652
 95,170
General and administrative (1)
General and administrative (1)
84,652 95,170 137,506 163,153 182,477 
Restructuring and other (2)
Restructuring and other (2)
— — — — 30,999 
Legal settlement (3)
—
 —
 —
 30,000
 —
Legal settlement (3)
30,000 — — — — 
Total operating expenses96,733
 277,381
 482,621
 720,504
 854,396
Total operating expenses708,164 838,415 1,071,553 1,324,837 1,409,957 
Loss from operations(78,129) (180,482) (210,181) (244,806) (185,158)Loss from operations(221,272)(167,434)(169,257)(191,283)(261,033)
Other income (expense), net(141) (1,412) (2,002) 1,627
 11,445
Other income (expense), net1,627 11,445 (8,016)(3,383)(9,127)
Loss before provision for income taxes(78,270) (181,894) (212,183) (243,179) (173,713)Loss before provision for income taxes(219,645)(155,989)(177,273)(194,666)(270,160)
Provision for income taxes291
 1,337
 1,569
 1,887
 3,889
Provision for income taxes1,887 3,889 1,089 6,321 11,916 
Net loss$(78,561) $(183,231) $(213,752)
$(245,066) $(177,602)Net loss$(221,532)$(159,878)$(178,362)$(200,987)$(282,076)
Net loss per share attributable to common stockholders, basic and diluted$(3.24) $(6.56) $(2.59) $(1.26) $(0.84)Net loss per share attributable to common stockholders, basic and diluted$(1.14)$(0.76)$(0.77)$(0.79)$(1.05)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted24,237
 27,925
 82,460
 194,714
 211,609
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted194,714 211,609 232,042 252,820 267,824 

(1)
(1)Includes stock-based compensation expense as follows:
 Year Ended January 31,
 2014 2015 2016 2017 2018
 (in thousands)
Cost of revenue—product$253
 $303
 $276
 $601
 $1,630
Cost of revenue—support316
 1,273
 2,388
 5,639
 9,050
Research and development11,477
 22,512
 31,135
 63,495
 71,229
Sales and marketing9,014
 22,466
 16,966
 34,317
 47,687
General and administrative506
 6,479
 7,460
 12,616
 21,077
Total stock-based compensation expense$21,566
 $53,033
 $58,225
 $116,668
 $150,673
Stock-based compensation expense as follows:
 Fiscal Year Ended
20172018201920202021
 (in thousands)
Cost of revenue—product$601 $1,630 $2,951 $3,732 $4,001 
Cost of revenue—subscription services5,639 9,050 12,378 14,403 14,979 
Research and development63,495 71,229 92,484 107,658 117,220 
Sales and marketing34,317 47,687 66,350 67,560 65,248 
General and administrative12,616 21,077 36,482 33,352 40,896 
Total stock-based compensation expense$116,668 $150,673 $210,645 $226,705 $242,344 

(2)Includes expenses related to restructuring and incremental expenses directly related to COVID-19.
(3)Represents a one-time charge of $30.0 million for the years ended January 31, 2014 and 2015 included $13.3 million and $27.6 million, respectively, of cash paid for the repurchase of common stocka legal settlement with Dell, Inc. in excess of fair value.



(2)
Includes a one-time charge of $11.9 million for an equity grant to the Pure Good Foundation for the year ended January 31, 2016.See Note 6 of our Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

(3)Represents a one-time charge for our legal settlement with Dell, Inc. See Note 5 of our Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.


fiscal 2017.
35

   As of January 31,
 2014 2015 2016 2017 2018
 (in thousands)
Consolidated Balance Sheet Data:     
  
  
Cash and cash equivalents$130,885
 $192,707
 $604,742
 $183,675
 $244,057
Marketable securities—
 —
 —
 362,986
 353,289
Working capital137,396
 224,362
 603,538
 506,956
 563,989
Total assets182,479
 356,290
 870,783
 899,745
 1,079,407
Deferred revenue, current and non-current portion16,827
 73,669
 216,204
 303,126
 406,009
Convertible preferred stock262,970
 543,940
 —
 —
 —
Total stockholders’ equity (deficit)(116,087) (299,830) 563,354
 478,430
 497,906




 At the End of Fiscal
 20172018201920202021
 (in thousands)
Consolidated Balance Sheet Data:   
Cash and cash equivalents$183,675 $244,057 $447,990 $362,635 $337,147 
Marketable securities362,986 353,289 749,482 936,518 916,388 
Working capital526,043 580,788 1,192,011 1,275,651 1,147,513 
Total assets928,352 1,123,995 1,973,025 2,364,204 2,819,440 
Deferred revenue, current and non-current portion272,963 374,102 535,920 697,288 843,697 
Long-term debt— — 449,828 477,007 755,814 
Total stockholders’ equity537,201 574,401 737,780 830,118 750,006 



36

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Investors should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Consolidated Financial Data” and the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled” Risk Factors” and in other parts of this Annual Report on Form 10-K. See also the section titled “Note Regarding Forward-Looking Statements” in this report. Our fiscal year end is the first Sunday after January 31.30.
Overview
We empower innovatorsData is foundational to build a better world with data. As the demand for dataour customers' digital transformation and the need for real-time analytics increase, we are focused on delivering software-defined all-flashinnovative and disruptive technology and data storage solutions that are uniquely fast and cloud-capable for customers, enablingenable customers to maximize the value of data, gain competitive advantagetheir data. In our first decade, we completely changed customers' expectations of what they should see from storage arrays and keep pacestorage vendors, making flash storage widely available to enterprise organizations and revolutionizing the customer experience with cutting edge developments. Our innovative data platform replaces storage systems designed for mechanical disk with all-flash systems optimized end-to-end for solid-state memory. Our Pure1 cloud-based support and management platform, powered by our META AI Engine dramatically simplifies storage administration, while real-time scanning enables us to find and fix issues before they have an impact. Our innovative business model replaces the traditional forklift upgrade cycle with an Evergreen Storage subscription model that radically simplified and reduced total cost of hardwarestorage ownership. Today, we are changing the expectations for data and software innovation,storage management by providing customers a cloud experience with flexible on-demand data services consumption through delivery of a Modern Data Experience that empowers organizations to run their operations as a true, automated, storage as-a-service model seamlessly across multiple clouds.
Our solutions support a wide range of structured and maintenance.unstructured data, at scale and across any data workloads on-premise, in the cloud, or hybrid environments and include mission-critical production, test/development, analytics, disaster recovery, and backup/recovery.
We were incorporated in 2009Our Modern Data Experience vision begins with a vision to define the next generationour portfolio of enterprise storage by pioneering the all-flash array categoryproducts and innovating a customer-centric business model. We deliver our platform as our flash-optimized software and modular and scalable all-flash hardware in our FlashArray and FlashBlade products, inclusive of our Purity Operating Environment (Purity OE) software, our Pure1 cloud-based software and FlashStack, our joint converged infrastructure solution with Cisco. This entire platform is powered by innovative softwaresubscription services that is cloud-connected for management from anywheretransforming and supported by our Evergreen Storage business model.
Since launching in May 2012, our customer base has grown to over 4,500 customers, including over 30% of the Fortune 500. Our customers include large and mid-size organizations across a diverse set of industry verticals, including cloud-based software and service providers, consumer web, education, energy, financial services, governments, healthcare, manufacturing, media, retail and telecommunications. We define a customer as an end user that purchases our products and services either from one of our channel partners or from us directly. No end customer represented over 10% of revenue for the years ended January 31, 2016, 2017 and 2018.
We have grown rapidly in recent periods, with revenue increasing from $440.3 million for the year ended January 31, 2016 to $728.0 million for the year ended January 31, 2017 and to $1,023.0 million for the year ended January 31, 2018, representing year-over-year revenue growth of 65% and 41% for our two most recent years. We expect that our revenue growth rate will continue to decline as our business scales, even if our revenue continues to grow in absolute terms. We have continued to make significant expenditures and investments, including in personnel-related costs, sales and marketing, infrastructure andmodernizing storage operations and have incurred net losses in each period since our inception, including net losses of $213.8 million, $245.1 million, and $177.6 million, respectively, for the years ended January 31, 2016, 2017 and 2018.
Since our founding, we have invested heavily in growing our business. Our headcount increased from over 1,700 employees as of January 31, 2017 to over 2,100 employees as of January 31, 2018. We intend to continue to invest in our research and development organization to extend our technology leadership, enhance the functionality of our existing products and introduce new products. By investing in research and development, we believe we will be well positioned to continue our rapid growth and take advantage of our large market opportunity.
We also intend to continue to invest and expand our sales and marketing functions and channel programs, including expanding our global network of channel partners and carrying out associated marketing activities in key geographies. By investing in sales and technical training, demand generation and partner programs, we believe we can enable many of our partners to independently identify, qualify, sell and upgrade customers, with limited involvement from us.
In addition, we intend to expand and continue to invest in our international operations, which we believe will be an important factor in our continued growth. Our revenue generated from international customers was 22%, 23% and 25% of our total revenue for the years ended January 31, 2016, 2017 and 2018, respectively.


As a result of our strategy to increase our investments in research and development, sales, marketing, support and international expansion, we may continue to incur operating losses and negative cash flows from operations in the near future and may require additional capital resources to execute strategic initiatives to grow our business.
Beginning fiscal year 2019, we have adopted a new revenue recognition standard (ASC 606). ASC 606 supersedes the prior revenue recognition standard (ASC 605). Our results of operations for the periods presented in this Annual Report on Form 10-K are under ASC 605. Refer to Note 2 in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Our Business Model
We sell our data platform predominantly through a high touch, channel-fulfilled model. Our sales force works collaboratively with our channel partners and is responsible for large account penetration, global account coordination and overall market development. Our channel partners help market and sell our products, typically with assistance from our sales force. This joint sales approach provides us with the benefit of direct relationships with substantially all of our customers and expands our reach through the relationships of our channel partners.
Our channel partners typically place orders with us upon receiving an order from a customer and do not stock inventory. Our sales organization is supported by systems engineers with deep technical expertise and responsibility for pre-sales technical support and engineering for our customers. We support our channel partners through product education and sales and support training. We intend to continue to invest in the channel to add more partners and to expand our reach to customers through our channel partners’ relationships. No channel partner represented over 10% of revenue for the years ended January 31, 2016 and January 31, 2018. One channel partner represented 11% of revenue for the year ended January 31, 2017.
Our business model enables customers to broadly adopt flash for a wide variety of workloads in their data center, with some of our most innovative customers adopting all-flash data centers. We do not charge separately for software, meaning that when a customer buys a FlashArray or FlashBlade, all operating software functionality is included in the base purchase price, and the customer is entitled to updates and new features to the operating software as long as the customer maintains an active maintenance and support agreement. Product revenue is recognized at the time title and risk of loss have transferred. Support revenue is recognized ratably over the term of the related maintenance and support agreement, generally ranging from 1 to 5 years.
To deliver on the next level of operational simplicity and support excellence, we designed Pure1, our integrated cloud-based management and support. Pure1 enables our customers, support staff and partners to collaborate to achieve the best customer experience and is included with an active maintenance and support agreement. In addition, our Evergreen Storage program provides our customers who continually maintain active maintenance and support for three years with an included controller refresh with each additional three year maintenance and support renewal. In this way, our customers improve and extend the service life of their arrays, we reduce our cost of support by keeping the array modern and we encourage capacity expansion. In accordance with accounting guidance for revenue recognition, we recognize the allocated revenue of the controllers and expense the related cost in the period in which we ship these controllers.
The combination of our high-performance, all-flash products, our exceptional support and our innovative business model has had a substantial impact on customer success and loyalty and are strong drivers of both initial purchase and additional purchases of our products. For customers that have been with us for at least 12 months as of January 31, 2018, for every $1 of initial product purchase, our top 25 customers on average spent approximately $11 on new product purchases in the first 18 months following their initial purchase.
Trends in Our Business and Industry

Demand for Data in the Cloud Era

In today’s digital economy, we believe that data is key. Data is the strategic core that enables competitiveness and differentiation for businesses -- collecting vast amounts of data, analyzing it rapidly, discovering new insights, and ultimately delivering new innovations and experiences otherwise impossible without data. We continue to make significant investments in our business to develop and deliver a data platform to support today and tomorrow’s volume and velocity of data and to ensure the performance required for new data-driven applications, while substantially


reducing costs and complexity for our customers. Our abilityModern Data Experience vision extends to deliver newan innovative and enhanced products will be a key factor in capturing mindshare with our target customers to become theirhighly-integrated data platform of choice.products and subscription services, consisting of Cloud Data Infrastructure (integrated hardware and software appliances which run in on-premise data centers), Cloud Data Services (software services which run natively in major public cloud infrastructures), and Cloud Data Management (software hosted data management services to manage our entire platform).

Revenue Drivers
AdoptionWe generate the majority of All-Flashour revenues from our Cloud Data Infrastructure, including FlashArray and FlashBlade, and subscriptionservices which primarily includes our Evergreen Storage Systems subscription, Pure as-a-Service(PaaS), and Cloud Block Store.

Portworx Acquisition
OrganizationsIn October 2020, we expanded our data services capabilities for containerized, cloud-native applications with the acquisition of Portworx Inc. (Portworx), a privately-held container storage company that provides a Kubernetes data services platform. Cloud-native databases, analytics applications and artificial intelligence (AI) frameworks, such as Cassandra, MongoDB, Postgres, Kafka, Elasticsearch, Spark, and Tensorflow, are the tools upon which customers build their modern data pipelines. By integrating Portworx container data services, which includes storage, data protection, data security and disaster recovery/backup, with our data platforms, this acquisition further enhances our Modern Data Experience by expanding our support for these cloud-native applications on any infrastructure, on-premise or in the cloud environment at any scale.
37

Coronavirus (COVID-19)
The Coronavirus (COVID-19) pandemic, which resulted in authorities implementing preventive measures to contain or mitigate the outbreak of the virus, such as travel bans and restrictions, limitations on business activity, quarantines and shelter-in-place orders continues to have an impact globally. In response to the pandemic, we made some changes to our business at the outset that included instituting a global work-from-home policy beginning in March 2020 that resulted in limited disruptions in our work operations during fiscal 2021. After a brief acceleration of our business from increased demand of mission critical IT needs as customers shifted to work at home and online, we experienced a sharp deceleration as customers assessed both their business prospects and plans for digital transformation. This was then followed by a gradual stabilization in our business during the second half of fiscal 2021 as customers increasingly replacing traditional disk-based systems with all-flash storage systems, dueadapted to their higherthe COVID-19 environment. Partially offsetting the headwinds from COVID-19 were reduced operating expenses in the areas of travel and marketing costs. In addition, we effected certain restructuring activities to streamline our operations, such as limited workforce realignments and vacating certain office leases.
We continue to actively monitor, evaluate and respond to developments relating to COVID-19. Since the impact of the pandemic on our operational and financial performance reliabilityremains highly unpredictable, our past results may not be indicative of future performance. Given the uncertainty, we are unable to predict the full extent and efficiency. Flash is expected to penetrateduration of the data center at a rapid rate,impact of COVID-19 on customer demand, our global supply chains and our success depends on the adoption of all-flash storage systems.business, operations and financial results. To the extent more organizations recognize the benefitspandemic continues to disrupt economic activity globally we, like other businesses, would not be immune at it could adversely affect our business, operations and financial results. See "Risk Factors" in Part I, Item 1A. for additional details.
Change in Fiscal Year End
In September 2019, we adopted a 52/53 week fiscal year consisting of all-flash storage and the adoption of all-flash storage increases, our target customer base will expand, and demand for all-flash storage will rise.

Adding New Customers and Expanding Sales to Our Existing Customer Base

We believe that all-flash storage market is still in the early stages of adoption. In order to capture long-term strategic opportunities, we intend to continue to target new customers, including large enterprises, service providers and government organizations, by continuing to invest in our field sales force and extending our relationships with key channel partners. We also expect that a substantial portion of our future sales will continue to be sales to existing customers, including expansion of existing arrays.

Seasonality in our Business Operations

Consistent with the seasonality of the enterprise IT as a whole, we generally experience the lowest demand for our products and services infour 13-week quarters ending on the first Sunday after January 30 which for fiscal 2020 was February 2, 2020 and for fiscal 2021 was January 31, 2021. The updated calendar will occasionally include a 14-week fourth quarter, of ourwhich will first occur in fiscal year 2022, starting on November 1, 2021 and the greatest demand for our products and services in the last quarter of our fiscal year. Furthermore, we typically focus our investments into our sales organization, along with significant product launches, in the first half of our fiscal year. As a result, we expect that our business and results of operations will fluctuate from quarter to quarter, reflecting seasonally softer revenue and operating margin in the first half of our fiscal year, followed by stronger second half, the relative impact of which will grow as we operate at a larger scale.ending on February 6, 2022.

Components of Results of Operations

Revenue
We derive revenue primarily from the sale of our storageCloud Data Infrastructure, including FlashArray and FlashBlade products and supportsubscription services which includes our Evergreen Storage subscription, and our unified subscription that includes PaaS and Cloud Block Store. Subscription services also include our professional services offerings such as installation and implementation consulting services.
Provided that all other revenue recognition criteria have been met, we typically recognize product revenue upon shipment, as title and risktransfer of loss are transferredcontrol to our channel partners at that time.customers and the satisfaction of our performance obligations. Products are typically shipped directly by us to customers, and our channel partners do not stock our inventory. We expect our product revenue may vary from period to period based on, among other things, the timing and size of orders and delivery of products and the impact of significant transactions.
We provide our support services pursuant to maintenance and support agreements, which involve customer support, hardware maintenance and software upgrades for a period of generally 1 to 5 years. We recognize revenue from maintenance and support agreementssubscription services ratably over the contractual service period.period and professional services as delivered. We expect our supportsubscription services revenue to increase and continue to grow faster than our product revenue as we add newmore customers choose to consume our technologies as a service and our existing subscription customers renew maintenance and support agreements.expand their consumption and service levels.
Cost of Revenue
Cost of product revenue primarily consists of costs paid to our third-party contract manufacturer,manufacturers, which includes the costs of our raw material components, and personnel costs associated with our manufacturing operations. Personnel costs consist of salaries, bonuses and stock-based compensation expense. Our cost of product revenue also includes freight, allocated overhead costs, inventory write-offs, amortization of intangible assets pertaining to developed technology, and inventory write-offs.freight. Allocated overhead costs consist of certain employee benefits and facilities-related costs. We expect our cost of product revenue to increase in absolute dollars as our product revenue increases.
38

Cost of supportsubscription services revenue primarily includesconsists of personnel costs associated with delivering our customer support organizationsubscription and professional services, part replacements, allocated overhead costs as well as parts replacement costs.and depreciation of infrastructure used to deliver our subscription services. We expect our cost of supportsubscription services revenue to increase in absolute dollars, as our supportsubscription services revenue increases.


Operating Expenses
Our operating expenses consist of research and development, sales and marketing and general and administrative expenses. Salaries and personnel-related costs, including stock-based compensation expense, are the most significant component of each category of operating expenses. Operating expenses also include allocated overhead costs for employee benefits and facilities-related costs.
Research and Development. Research and development expense consistsexpenses consist primarily of employee compensation and related expenses, prototype expenses, depreciation associated with assets acquired for research and development, third-party engineering and contractor support costs, as well as allocated overhead. We expect our research and development expense to increase in absolute dollars and it may decrease as a percentage of revenue, as we continue to invest in new and existing products and build upon our technology leadership.revenue.
Sales and Marketing. Sales and marketing expense consistsexpenses consist primarily of employee compensation and related expenses, sales commissions, marketing programs, travel and entertainment expenses as well as allocated overhead. Marketing programs consist of advertising, events, corporate communications and brand-building activities. We expect our sales and marketing expense to increase in absolute dollars and it may decrease as a percentage of revenue as we expandcontinue to realize efficiencies from scaling our sales force and increase our marketing resources, expand into new markets and further develop our channel program.business.
General and Administrative.General and administrative expense consistsexpenses consist primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, IT and fees for third-party professional services as well as amortization of intangible assets pertaining to defensive technology patents and allocated overhead. We expect our general and administrative expense to increase in absolute dollars and it may decrease as a percentage of revenue, as we continue to invest in the growth of our business.revenue.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income earned onrelated to cash, cash equivalents and marketable securities, interest expense related to our debt and gains and losses(losses) from foreign currency transactions.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and state income taxes in the United States. We have recorded no U.S. federal current income tax and provided a full valuation allowance for U.S. deferred tax assets, which includes net operating loss carryforwards and tax credits related primarily to research and development. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that the deferred tax assets will not be realized based on our history of losses.

39



Results of Operations
The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue:
 Year Ended January 31,
 2016 2017 2018
 (in thousands)
Consolidated Statements of Operations Data: 
  
  
Revenue: 
  
  
Product$375,733
 $590,001
 $813,985
Support64,600
 137,976
 209,034
Total revenue440,333
 727,977
 1,023,019
Cost of revenue: 
  
  
Product (1)
132,870
 194,150
 275,242
Support (1)
35,023
 58,129
 78,539
Total cost of revenue167,893
 252,279
 353,781
Gross profit272,440

475,698
 669,238
Operating expenses: 
  
  
Research and development (1)
166,645
 245,817
 279,196
Sales and marketing (1)
240,574
 360,035
 480,030
General and administrative (1) (2)
75,402
 84,652
 95,170
Legal settlement (3)
—
 30,000
 —
Total operating expenses482,621
 720,504
 854,396
Loss from operations(210,181) (244,806) (185,158)
Other income (expense), net(2,002) 1,627
 11,445
Loss before provision for income taxes(212,183) (243,179) (173,713)
Provision for income taxes1,569
 1,887
 3,889
Net loss$(213,752)
$(245,066) $(177,602)

(1)Includes stock-based compensation expense as follows:
 Year Ended January 31,
 2016 2017 2018
 (in thousands)
Cost of revenue—product$276
 $601
 $1,630
Cost of revenue—support2,388
 5,639
 9,050
Research and development31,135
 63,495
 71,229
Sales and marketing16,966
 34,317
 47,687
General and administrative7,460
 12,616
 21,077
Total stock-based compensation expense$58,225
 $116,668
 $150,673
(2)Includes a one-time charge of $11.9 million for an equity grant to the Pure Good Foundation for the year ended January 31, 2016. See Note 6 of our Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

(3)Represents a one-time charge for our legal settlement with Dell, Inc. See Note 5 of our Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.



 Year Ended January 31,
 2016 2017 2018
Percentage of Revenue Data: 
  
  
Revenue: 
  
  
Product85 % 81 % 80 %
Support15
 19
 20
Total revenue100
 100
 100
Cost of revenue: 
  
  
Product30
 27
 27
Support8
 8
 8
Total cost of revenue38
 35
 35
Gross profit62
 65
 65
Operating expenses: 
  
  
Research and development38
 34
 27
Sales and marketing55
 49
 47
General and administrative17
 12
 9
Legal settlement—
 4
 —
Total operating expenses110
 99
 83
Loss from operations(48) (34) (18)
Other income (expense), net—
 1
 1
Loss before provision for income taxes(48) (33) (17)
Provision for income taxes1
 1
 —
Net loss(49)% (34)% (17)%
total revenue (in thousands):
Revenue

Fiscal Year EndedChangeFiscal Year EndedChange
 Year Ended January 31, Change Year Ended January 31, Change 20192020$%20202021$%
 2016 2017 $ % 2017 2018 $ %
 (dollars in thousands)
(in thousands)(in thousands)
Product revenue $375,733
 $590,001
 $214,268
 57% $590,001
 $813,985
 $223,984
 38%Product revenue$1,075,586 $1,238,654 $163,068 15 %$1,238,654 $1,144,098 $(94,556)(8)%
Support revenue 64,600
 137,976
 73,376
 114% 137,976
 209,034
 71,058
 52%
Subscription services revenueSubscription services revenue284,238 404,786 120,548 42 %404,786 540,081 135,295 33 %
Total revenue $440,333
 $727,977
 $287,644
 65% $727,977
 $1,023,019
 $295,042
 41%Total revenue$1,359,824 $1,643,440 $283,616 21 %$1,643,440 $1,684,179 $40,739 2 %
 
Total revenue increased in fiscal 2021 by $295.0$40.7 million, or 41%2%, during the year ended January 31, 2018 compared to fiscal 2020. The decrease in product revenue during fiscal 2021 compared to fiscal 2020 was largely driven by headwinds caused by the year ended January 31, 2017.COVID-19 pandemic, despite sales growth from our FlashBlade and FlashArray//C offerings and purchases from new customers. Our customer base grew from over 7,500 at the end of fiscal 2020 to over 8,700 at the end of fiscal 2021. The increase in product revenue was driven by repeat purchases from existing customers and a growing number of new customers. The number of customers grew from over 3,000 as of January 31, 2017 to over 4,500 as of January 31, 2018. The increase in supportsubscription services revenue was primarily driven by an increaseincreases in maintenancesales of our Evergreen Storage subscription services, and support agreements sold with increased product sales, our unified subscription that includes PaaS and Cloud Block Store, as well as increased recognition of deferred supportsubscription services revenue contracts.contracts.
Total revenue increased in fiscal 2020 by $287.6$283.6 million, or 65%21%, during the year ended January 31, 2017 compared to the year ended January 31, 2016.fiscal 2019 despite being adversely impacted by significant accelerated declines in prices of certain key components that we use in our solutions. The increase in product revenue during fiscal 2020 compared to fiscal 2019 was primarily driven by multiple factors including increased sales of our new products such as FlashBlade and FlashArray//C, sales of larger FlashArray systems, increases in repeat purchases from existing customers and a growing number ofpurchases from new customers. The number of customersOur customer base grew from over 1,650 as5,800 at the end of January 31, 2016fiscal 2019 to over 3,000 as7,500 at the end of January 31, 2017.fiscal 2020. The increase in supportsubscription services revenue was primarily driven primarily by an increaseincreases in maintenancesales of our Evergreen Storage subscription services, and support agreements sold with increased product sales,our unified subscription that includes PaaS and Cloud Block Store, as well as the fullincreased recognition of deferred subscription services revenue contracts.
During fiscal year 2021 compared to fiscal 2020, total revenue impact from such agreements sold in the previous year.United States grew by 1% from $1,184.9 million to $1,195.4 million and total rest of the world revenue grew by 7% from $458.5 million to $488.8 million. During fiscal 2020 compared to fiscal 2019, total revenue in the United States grew by 21% from $979.5 million to $1,184.9 million and total rest of the world revenue grew by 21% from $380.4 million to $458.5 million. For further details on revenues by geography, see Note 16 of Part II, Item 8 of this Annual Report on Form 10-K.



Deferred Revenue
Deferred revenue primarily consists of amounts that have been invoiced but have not yet been recognized as revenue and including performance obligations pertaining to subscription services. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the consolidated balance sheet dates.
Changes in total deferred revenue during the periods presented are as follows (in thousands):
Fiscal Year Ended
20202021
Beginning balance$535,920 $697,288 
Additions569,816 703,800 
Recognition of deferred revenue(408,448)(557,391)
Ending balance$697,288 $843,697 

Revenue recognized during fiscal 2020 and 2021 from deferred revenue at the beginning of each respective period was $267.0 million and $353.1 million.
40

Remaining Performance Obligations
Total contracted but not recognized revenue was $1,093.5 million at the end of fiscal 2021. Contracted but not recognized revenue consists of both deferred revenue and non-cancelable amounts that are expected to be invoiced and recognized as revenue in future periods. Orders that are contracted but have not been fulfilled and that can be canceled by customers are excluded from remaining performance obligations. Cancellable orders received and not fulfilled at the end of fiscal 2021 have increased compared to the end of fiscal 2020. Of the $1,093.5 million contracted but not recognized revenue at the end of fiscal 2021, we expect to recognize approximately 43% over the next 12 months, and the remainder thereafter.
Cost of Revenue and Gross Margin
Fiscal Year EndedChangeFiscal Year EndedChange
 Year Ended January 31, Change Year Ended January 31, Change 20192020$%20202021$%
(in thousands) (in thousands)
Product cost of revenueProduct cost of revenue$349,103 $359,238 $10,135 3 %$359,238 $348,986 $(10,252)(3)%
Stock based compensationStock based compensation2,951 3,732 781 26 %3,732 4,001 269 7 %
Total expensesTotal expenses$352,054 $362,970 $10,916 3 %$362,970 $352,987 $(9,983)(3)%
% of Product revenue% of Product revenue33 %29 %29 %31 %
 2016 2017 $ % 2017 2018 $ %
Subscription services cost of revenueSubscription services cost of revenue$93,096 $132,513 $39,417 42 %$132,513 $167,289 $34,776 26 %
Stock based compensationStock based compensation12,378 14,403 2,025 16 %14,403 14,979 576 4 %
Total expensesTotal expenses$105,474 $146,916 $41,442 39 %$146,916 $182,268 $35,352 24 %
% of Subscription services revenue% of Subscription services revenue37 %36 %36 %34 %
 (dollars in thousands)
Product cost of revenue $132,870
 $194,150
 $61,280
 46% $194,150
 $275,242
 $81,092
 42%
Support cost of revenue 35,023
 58,129
 23,106
 66% 58,129
 78,539
 20,410
 35%
Total cost of revenue $167,893
 $252,279
 $84,386
 50% $252,279
 $353,781
 $101,502
 40%Total cost of revenue$457,528 $509,886 $52,358 11 %$509,886 $535,255 $25,369 5 %
% of Revenue% of Revenue34 %31 %31 %32 %
Product gross margin 64.6% 67.1%  
  
 67.1% 66.2%  
  
Product gross margin67 %71 %  71 %69 %  
Support gross margin 45.8% 57.9%  
  
 57.9% 62.4%  
  
Subscription services gross marginSubscription services gross margin63 %64 %  64 %66 %  
Total gross margin 61.9% 65.3%  
  
 65.3% 65.4%  
  
Total gross margin66 %69 %  69 %68 %  
Cost of revenue increased by $101.5$25.4 million, or 40%5%, for the year ended January 31, 2018fiscal 2021 compared to fiscal 2020. The decrease in product cost of revenue was primarily attributable to the year ended January 31, 2017.corresponding decline in product revenue due to headwinds caused by the COVID-19 pandemic, partially offset by increased costs in our manufacturing operations associated with increased headcount and an increase in the amortization of acquired intangible assets. The increase in subscription services cost of revenue was primarily attributable to higher costs in our customer support organization.
The decline in product gross margin for fiscal 2021 compared to fiscal 2020 was primarily attributable to lower component costs for certain key raw materials that we use for our solutions and increased sales of larger FlashArray systems in fiscal 2020. The increase in subscription services gross margin for both periods was driven by increased renewals in Evergreen Storage subscriptions and increased sales of unified subscription services.
Cost of revenue increased by $52.4 million, or 11%, for fiscal 2020 compared to fiscal 2019. The increase in product cost of revenue was primarily driven by increased sales and, to a lesser extent, by the increased costs in our manufacturing operations associated with increased headcount.headcount and an increase in the amortization of intangible assets.
41

Product cost of revenue and product gross margins during fiscal 2020 benefited from significant price reductions for certain key raw materials that we use for our solutions and sales of our larger FlashArray systems. The increase in supportsubscription services cost of revenue was primarily attributable to costs in our customer support organization as we continue to expand globally. Total headcount in these functions increased 44% from January 31, 2017 to January 31, 2018.
Total gross margin remained relatively consistent during the years ended January 31, 2017 and 2018. Product gross margin decreased 0.9 percentage point from the year ended January 31, 2017 to the year ended January 31, 2018, primarily driven by a shift in the mix of products sold as the proportion of revenue from FlashBlade increased. Support gross margin increased 4.5 percentage points from the year ended January 31, 2017 to the year ended January 31, 2018 primarily driven by increased recognition of deferred support revenue resulting from the increase in our customer base, as well as efficiencies gained as we scale in our support organization globally.
Cost of revenue increased by $84.4 million, or 50%, for the year ended January 31, 2017 compared to the year ended January 31, 2016. The increase in product cost of revenue was primarily driven by increased product sales and, to a lesser extent, by the increased costs in our manufacturing operations, including increased personnel costs associated with increased headcount. The increase in support cost of revenue was primarily attributable to higher costs from the continued growth of our customer support organization. These costs are primarily driven by increased personnel costs associated with increased headcount and an increase in parts replacement associated with a higher number of maintenance and support agreements. Total headcount in these functions increased 34% from January 31, 2016 to January 31, 2017.
Total gross margin increased from 61.9% during the year ended January 31, 2016 to 65.3% during the year ended January 31, 2017. Product gross margin increased 2.5 points from the year ended January 31, 2016 to the year ended January 31, 2017, primarily driven by a shift in the mix of products sold as we continued transition to FlashArray//M. Support gross margin increased 12.1 points from the year ended January 31, 2016 to the year ended January 31, 2017, primarily due to increased recognition of deferred support revenue resulting from the increase in our customer base, as well as continued efficiencies gained as we scale our support organization worldwide.


this business grows.
Operating Expenses
Research and Development
 Fiscal Year EndedChangeFiscal Year EndedChange
 20192020$%20202021$%
 (in thousands)
Research and development$257,452 $326,004 $68,552 27 %$326,004 $363,247 $37,243 11 %
Stock based compensation92,484 107,658 15,174 16 %107,658 117,220 9,562 9 %
Total expenses$349,936 $433,662 $83,726 24 %$433,662 $480,467 $46,805 11 %
% of Total revenue26 %26 %26 %29 %
 Year Ended January 31, Change Year Ended January 31, Change
 2016 2017 $ % 2017 2018 $ %
 (dollars in thousands)
Research and development$166,645
 $245,817
 $79,172
 48% $245,817
 $279,196
 $33,379
 14%
Research and development expense increased by $33.4$46.8 million, or 14%11%, during the year ended January 31, 2018fiscal 2021 compared to the year ended January 31, 2017,fiscal 2020, as we continued to innovate and develop new technologies to both enhance and enhanceexpand our current product offerings such as our FlashBlade and FlashArray//X products.solution portfolio. The increase was primarily driven by a $29.3$56.5 million increase in employee compensation and related costs, including a $7.7$9.6 million increase in stock-based compensation expense, as headcount increased by 7% from January 31, 2017 to January 31, 2018.expense. The remainder of the increase was primarily attributable to a $6.1$10.1 million increase in depreciation and equipment expense,outside services expenses, partially offset by a $2.4$22.4 million decrease in prototypedepreciation expense primarily due to revising our estimated useful lives of test equipment and related expenses.certain computer equipment and software during fiscal 2021.
Research and development expense increased by $79.2$83.7 million, or 48%24%, during the year ended January 31, 2017fiscal 2020 compared to the year ended January 31, 2016,fiscal 2019, as we continued to innovate and develop newtechnologies to both enhance and enhanced product offerings such asexpand our FlashBlade and FlashArray//M products.solution portfolio. The increase was primarily driven by ana $70.9 million increase of $63.9 million in salaryemployee compensation and related costs, including ana $15.2 million increase of $32.4 million in stock-based compensation expense, as headcount increased by 26% from January 31, 2016 to January 31, 2017.expense. The remainder of the increase was primarily attributable to $11.6a $8.2 million in depreciation expense mostly related to test equipment, $3.6 millionincrease in office and facilities related costs, and $2.8a $4.4 million increase in professionaloutside services partially offset by a decrease of $7.1 million in prototype expenses.
Sales and Marketing
 Fiscal Year EndedChangeFiscal Year EndedChange
 20192020$%20202021$%
 (in thousands)
Sales and marketing$517,761 $660,462 $142,701 28 %$660,462 $650,766 $(9,696)(1)%
Stock based compensation66,350 67,560 1,210 2 %67,560 65,248 (2,312)(3)%
Total expenses$584,111 $728,022 $143,911 25 %$728,022 $716,014 $(12,008)(2)%
% of Total revenue43 %44 %44 %43 %
Sales and marketing expense decreased by $12.0 million, or 2%, during fiscal 2021 compared to fiscal 2020, primarily due to a decrease of $63.0 million in marketing and travel spend as a result of the COVID-19 pandemic, partially offset by an increase of $37.7 million in employee compensation and related costs as we continue to invest in certain areas within sales and marketing and expand our international presence, including an $8.2 million increase in sales commission expense. The remainder of the increase was primarily attributable to a $7.2 million increase in outside services expenses and a $4.2 million increase in subscription costs.
 Year Ended January 31, Change Year Ended January 31, Change
 2016 2017 $ % 2017 2018 $ %
 (dollars in thousands)
Sales and marketing$240,574
 $360,035
 $119,461
 50% $360,035
 $480,030
 $119,995
 33%
Sales and marketing expense increased by $120.0$143.9 million, or 33%25%, during the year ended January 31, 2018fiscal 2020 compared to the year ended January 31, 2017,fiscal 2019, as we continue to grow our sales force and expand our international presence. The increase was primarily driven by an increase of $91.4$115.5 million in employee compensation and related costs, including a $35.1$24.5 million increase in sales commission expense and a $13.4 million increase in stock-based compensation expense, as headcount increased by 30% from January 31, 2017 to January 31, 2018.expense. The remainder of the increase was primarily attributable to a $10.5$14.6 million increase in travel related costs, a $9.1 million increase in office and facilities related costs, and a $4.3 million increase in marketing and brand awareness program costscosts.
42

General and a $7.1 million increase in officeAdministrative
 Fiscal Year EndedChangeFiscal Year EndedChange
 20192020$%20202021$%
 (in thousands)
General and administrative$101,024 $129,801 $28,777 28 %$129,801 $141,581 $11,780 9 %
Stock based compensation36,482 33,352 (3,130)(9)%33,352 40,896 7,544 23 %
Total expenses$137,506 $163,153 $25,647 19 %$163,153 $182,477 $19,324 12 %
% of Total revenue10 %10 %10 %11 %
General and related costs.

Sales and marketingadministrative expense increased by $119.5$19.3 million, or 50%12%, during the year ended January 31, 2017fiscal 2021 compared to the year ended January 31, 2016, as we grew our sales force and expanded our geographic footprint.fiscal 2020. The increase was primarily driven by an increase of $90.6$21.4 million in salaryemployee compensation and related costs, including ana $7.5 million increase of $31.0 million in sales commission expense and an increase of $17.4 million in stock-based compensation expense as headcount increasedrelated, in part, to certain performance restricted stock awards, partially offset by 30% from January 31, 2016a $3.7 million decrease in office and facilities related costs.
General and administrative expense increased by $25.6 million, or 19%, during fiscal 2020 compared to January 31, 2017.fiscal 2019. The increase was primarily driven by an increase of $11.4 million in employee compensation and related costs. The remainder of the increase was primarily attributable to $14.8 million in marketing and brand awareness program costs, $6.6 million in office and related costs and $4.3 million in travel and entertainment expense.


General and Administrative
 Year Ended January 31, Change Year Ended January 31, Change
 2016 2017 $ % 2017 2018 $ %
 (dollars in thousands)
General and administrative$75,402
 $84,652
 $9,250
 12% $84,652
 $95,170
 $10,518
 12%
General and administrative expense increased by $10.5 million, or 12%, during the year ended January 31, 2018 compared to the year ended January 31, 2017. The increase was primarily driven by an increase of $17.3 million in employee compensation and related costs, including an increase of $8.5 million in stock-based compensation expense, as we increased our headcount by 27% from January 31, 2017 to January 31, 2018. The increase was partially offset by a $8.2 million decrease in outside service expenses primarily driven by lower legal fees incurred in fiscal year 2018.
General and administrative expense increased by $9.3 million, or 12%, during the year ended January 31, 2017 compared to the year ended January 31, 2016. The increase was primarily driven by an increase of $13.2 million in salary and related costs, including an increase of $5.2 million in stock-based compensation expense, as we increased our headcount by 35% from January 31, 2016 to January 31, 2017, a $4.3$8.0 million increase in office and facilities related costs and a $4.3an increase of $5.1 million increase in consultingoutside services expenses. The decrease in stock-based compensation was primarily due to lower expense recognized related to certain performance restricted stock awards and increased forfeitures.
Restructuring and Other
Fiscal Year EndedChangeFiscal Year EndedChange
20192020$20202021$
(in thousands)
Restructuring and other$— $— $— $— $30,999 $30,999 
% of Total revenue— %— %— %2 %
During fiscal 2021, we incurred incremental costs as we grew our business operations globally. These increases were partially offset by a one-time non-cash charge of $11.9$8.9 million for an equity grantdirectly related to the Pure Good FoundationCOVID-19 pandemic. These costs primarily included the write-off of marketing commitments no longer deemed to have value for the remainder of the fiscal year and estimated non-recoverable costs for internal events that could not be held. In addition, we expensed $9.9 million relating to the cease use of certain lease facilities and recognized $12.2 million in September 2015.
Legal Settlement

In October 2016, we incurred a one-time charge of $30.0 millioninvoluntary termination benefit costs related to a legal settlement. See Note 5 of our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.workforce realignment plans.
Other Income (Expense), Net
 Year Ended January 31, Change Year Ended January 31, Change
 2016 2017 $ 2017 2018 $
 (dollars in thousands)
Other income (expense), net$(2,002) $1,627
 $3,629
 $1,627
 $11,445
 $9,818
 Fiscal Year EndedChangeFiscal Year EndedChange
 20192020$20202021$
 (in thousands)
Other income (expense), net$(8,016)$(3,383)$4,633 $(3,383)$(9,127)$(5,744)
% of Total revenue(1)%— %— %(1)%
 
Other income (expense), net increaseddecreased during the year ended January 31, 2018fiscal 2021 compared to the year ended January 31, 2017fiscal 2020 primarily attributable to an $8.6 million increase in net gains from foreign currency transactions as U.S. dollars weakened relative to certain foreign currencies and a $1.2 million increasedecrease in interest income of $9.8 million from our cash, cash equivalents and marketable securities.securities resulting from lower interest rate environment and, to a lesser extent, higher interest expense due to borrowings under our revolving line of credit, partially offset by a $6.0 million reduction in net foreign exchange losses.
Other income (expense), net increased during the year ended January 31, 2017fiscal 2020 compared to the year ended January 31, 2016fiscal 2019 primarily driven byattributable to an increase of $4.2 million in interest income earned onof $9.2 million from our cash, cash equivalents and marketable securities and a $1.8 million reduction in net foreign exchange losses, partially offset by a $0.7 millionan increase in net losses from foreign currency transactions.interest expense of $6.3 million related to our convertible senior notes (Notes).

43


Provision for Income Taxes
 Year Ended January 31, Change Year Ended January 31, Change
 2016 2017 $ % 2017 2018 $ %
 (dollars in thousands)
Provision for income taxes$1,569
 $1,887
 $318
 20% $1,887
 $3,889
 $2,002
 106%
 Fiscal Year EndedChangeFiscal Year EndedChange
 20192020$%20202021$%
 (in thousands)
Provision for income taxes$1,089 $6,321 $5,232 480 %$6,321 $11,916 $5,595 89 %
% of Total revenue— %— %— %1 %
The provision for income taxes increased during the year ended January 31, 2018fiscal 2021 compared to the year ended January 31, 2017fiscal 2020 primarily relatedattributable to a $1.8 millionan increase in foreign income taxes due to higher foreign profits and a reduction in excess tax benefitsthe release of the valuation allowance related to our foreign stock-based activities.unrealized gains on available-for-sale securities from fiscal 2020.
The provision for income taxes increased during the year ended January 31, 2017fiscal 2020 compared to fiscal 2019 primarily attributable to the year ended January 31, 2016 primarilyfiscal 2019 U.S. valuation allowance release of $3.7 million related to a $1.3 million increase inthe StorReduce acquisition and higher foreign and state income taxes partially offset by a tax benefit of $1.0 million on stock-based compensation, as a result of the adoption of ASU 2016-09.during fiscal 2020.

44

Quarterly Results of Operations
The following sets forth selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended January 31, 2018,2021, as well as the percentage that each line item represents of our revenue for each quarter. The information for each of these quarters has been prepared on a basis consistent with our audited annual consolidated financial statements included elsewhere in this report and, in the opinion of management, includes all adjustments of a normal, recurring nature that are necessary for the fair presentation of the results of operations for these periods in accordance with generally accepted accounting principles in the United States. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this report. These historical quarterly operating results are not necessarily indicative of the results that may be expected for a full fiscal year or any future period.
 
 Fiscal Quarter Ended
 April 30, 2019July 31, 2019October 31, 2019February 2, 2020May 3, 2020August 2, 2020November 1, 2020January 31, 2021
 (unaudited, in thousands)
Consolidated Statements of Operations Data:       
Revenue:        
Product$238,741 $300,128 $323,268 $376,517 $246,939 $272,309 $274,470 $350,380 
Subscription services87,959 96,199 105,141 115,487 120,180 131,414 136,149 152,338 
Total revenue326,700 396,327 428,409 492,004 367,119 403,723 410,619 502,718 
Cost of revenue:        
Product (1)
76,592 92,870 89,998 103,510 69,285 84,731 86,661 112,310 
Subscription services (1)
33,721 35,138 37,773 40,284 41,009 44,266 47,442 49,551 
Total cost of revenue110,313 128,008 127,771 143,794 110,294 128,997 134,103 161,861 
Gross profit216,387 268,319 300,638 348,210 256,825 274,726 276,516 340,857 
Operating expenses:        
Research and development (1)
105,075 107,020 106,663 114,904 112,446 114,652 122,981 130,388 
Sales and marketing (1)
166,626 186,188 184,819 190,389 173,433 171,434 172,282 198,865 
General and administrative (1)
42,110 40,016 37,416 43,611 41,125 44,471 46,467 50,414 
Restructuring and other (2)
— — — — 14,702 8,288 — 8,009 
Total operating expenses313,811 333,224 328,898 348,904 341,706 338,845 341,730 387,676 
Loss from operations(97,424)(64,905)(28,260)(694)(84,881)(64,119)(65,214)(46,819)
Other income (expense), net(1,816)(652)9 (924)(3,416)1,603 (4,887)(2,427)
Loss before provision for income taxes(99,240)(65,557)(28,251)(1,618)(88,297)(62,516)(70,101)(49,246)
Provision for income taxes1,096 461 1,731 3,033 2,297 2,451 4,121 3,047 
Net loss$(100,336)$(66,018)$(29,982)$(4,651)$(90,594)$(64,967)$(74,222)$(52,293)

45

 Three Months Ended
 April 30, 2016 July 31, 2016 October 31, 2016 January 31, 2017 April 30, 2017 July 31, 2017 October 31, 2017 January 31, 2018
 (unaudited, in thousands)
Consolidated Statements of Operations Data:   
  
  
  
  
    
Revenue: 
  
  
  
  
  
    
Product$111,738
 $130,920
 $160,523
 $186,820
 $138,425
 $175,013
 $223,196
 $277,351
Support28,209
 32,294
 36,433
 41,040
 44,206
 49,448
 54,478
 60,902
Total revenue139,947
 163,214
 196,956
 227,860
 182,631
 224,461
 277,674
 338,253
Cost of revenue: 
  
  
  
  
  
  
  
Product (1)
34,046
 42,847
 54,725
 62,532
 46,645
 57,252
 75,392
 95,953
Support (1)
12,934
 14,000
 14,597
 16,598
 16,903
 19,199
 20,467
 21,970
Total cost of revenue46,980
 56,847
 69,322
 79,130
 63,548
 76,451
 95,859
 117,923
Gross profit92,967
 106,367
 127,634
 148,730
 119,083
 148,010
 181,815
 220,330
Operating expenses: 
  
  
  
  
  
  
  
Research and development (1)
52,938
 58,635
 61,612
 72,632
 65,428
 69,361
 68,927
 75,480
Sales and marketing (1)
83,098
 87,583
 91,392
 97,962
 96,964
 120,633
 129,299
 133,134
General and administrative (1)
21,581
 19,630
 22,810
 20,631
 20,096
 22,162
 25,406
 27,506
Legal Settlement (2)
—
 —
 30,000
 —
 —
 —
 —
 —
Total operating expenses157,617
 165,848
 205,814
 191,225
 182,488
 212,156
 223,632
 236,120
Loss from operations(64,650) (59,481) (78,180) (42,495) (63,405) (64,146) (41,817) (15,790)
Other income (expense), net1,282
 37
 (192) 500
 1,995
 3,266
 1,138
 5,046
Loss before provision for income taxes(63,368) (59,444) (78,372) (41,995) (61,410) (60,880) (40,679) (10,744)
Provision for income taxes (3)
420
 106
 441
 920
 964
 821
 970
 1,134
Net loss$(63,788) $(59,550) $(78,813) $(42,915) $(62,374) $(61,701) $(41,649) $(11,878)


(1)(1) Includes stock-based compensation expense as follows:
 Three Months Ended
 April 30, 2016 July 31, 2016 October 31, 2016 January 31, 2017 April 30, 2017 July 31, 2017 October 31, 2017 January 31, 2018
 (unaudited, in thousands)
Cost of revenue—product$106
 $181
 $138
 $176
 $397
 $358
 $143
 $732
Cost of revenue—support1,092
 1,712
 1,178
 1,657
 1,774
 2,245
 2,422
 2,609
Research and development11,658
 13,976
 15,241
 22,620
 15,588
 17,971
 18,073
 19,597
Sales and marketing7,519
 8,732
 8,468
 9,598
 10,626
 11,439
 12,104
 13,518
General and administrative2,623
 3,295
 3,210
 3,488
 3,834
 4,825
 6,121
 6,297
Total stock-based compensation$22,998
 $27,896
 $28,235
 $37,539
 $32,219
 $36,838
 $38,863
 $42,753

Stock-based compensation expense for the three months ended April 30, 2016 was adjusted by $864,000 resulting from the early adoption of Accounting Standards Update (ASU) No. 2016-09 (ASU 2016-09) in the second quarter of fiscal 2017.as follows:

 Fiscal Quarter Ended
 April 30, 2019July 31, 2019October 31, 2019February 2, 2020May 3, 2020August 2, 2020November 1, 2020January 31, 2021
 (unaudited, in thousands)
Cost of revenue—product$977 $954 $912 $889 $996 $990 $1,027 $988 
Cost of revenue—subscription services3,951 3,633 3,517 3,302 3,392 3,686 3,883 4,018 
Research and development27,835 27,164 25,933 26,726 28,711 29,839 29,220 29,450 
Sales and marketing18,314 16,055 16,802 16,389 16,272 16,848 14,898 17,230 
General and administrative10,670 8,654 5,171 8,857 9,323 10,089 10,581 10,903 
Total stock-based compensation$61,747 $56,460 $52,335 $56,163 $58,694 $61,452 $59,609 $62,589 
(2)Represents a one-time charge for our legal settlement with Dell, Inc. See Note 5 of our Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.


(3)Provision for income taxes for the three months ended April 30, 2016 was adjusted by $535,000 resulting from the early adoption of ASU 2016-09.

(2) Includes expenses related to restructuring and incremental expenses directly related to COVID-19.

 Fiscal Quarter Ended
 April 30, 2019July 31, 2019October 31, 2019February 2, 2020May 3, 2020August 2, 2020November 1, 2020January 31, 2021
 (unaudited)
Percentage of Revenue Data:        
Revenue:        
Product73 %76 %75 %77 %67 %67 %67 %70 %
Subscription services27 24 25 23 33 33 33 30 
Total revenue100 100 100 100 100 100 100 100 
Cost of revenue:        
Product24 23 21 21 19 21 21 22 
Subscription services10 9 9 8 11 11 12 10 
Total cost of revenue34 32 30 29 30 32 33 32 
Gross margin66 68 70 71 70 68 67 68 
Operating expenses:        
Research and development32 27 25 23 31 28 30 26 
Sales and marketing51 47 43 39 47 43 42 39 
General and administrative13 10 9 9 11 11 11 10 
Restructuring and other— — — — 4 2 — 2 
Total operating expenses96 84 77 71 93 84 83 77 
Loss from operations(30)(16)(7)— (23)(16)(16)(9)
Other income (expense), net— (1)— — (1)— (1)— 
Loss before provision for income taxes(30)(17)(7)— (24)(16)(17)(9)
Provision for income taxes1 — — 1 1 — 1 1 
Net loss(31)%(17)%(7)%(1)%(25)%(16)%(18)%(10)%

46
 Three Months Ended
 April 30, 2016 July 31, 2016 October 31, 2016 January 31, 2017 April 30, 2017 July 31, 2017 October 31, 2017 January 31, 2018
 (unaudited, in thousands)
Percentage of Revenue Data: 
  
  
  
  
  
    
Revenue: 
  
  
  
  
  
    
Product80 % 80 % 82 % 82 % 76 % 78 % 80 % 82 %
Support20
 20
 18
 18
 24
 22
 20
 18
Total revenue100
 100
 100
 100
 100
 100
 100
 100
Cost of revenue: 
  
  
  
  
  
  
  
Product24
 26
 28
 27
 26
 25
 27
 28
Support10
 9
 7
 8
 9
 9
 7
 7
Total cost of revenue34
 35
 35
 35
 35
 34
 34
 35
Gross margin66
 65
 65
 65
 65
 66
 65
 65
Operating expenses: 
  
  
  
  
  
  
  
Research and development38
 36
 31
 32
 36
 31
 25
 22
Sales and marketing59
 53
 47
 43
 53
 54
 47
 39
General and administrative15
 12
 12
 9
 11
 10
 9
 9
Legal settlement—
 —
 15
 —
 —
 —
 —
 —
Total operating expenses112
 101
 105
 84
 100
 95
 81
 70
Loss from operations(46) (36) (40) (19) (35) (29) (15) (5)
Other income (expense), net1
 —
 —
 1
 1
 2
 1
 1
Loss before provision for income taxes(45) (36) (40) (18) (34) (27) (14) (4)
Provision for income taxes1
 —
 —
 1
 —
 —
 1
 —
Net loss(46)% (36)% (40)% (19)% (34)% (27)% (15)% (4)%

Liquidity and Capital Resources
AsAt the end of January 31, 2018,fiscal 2021, we had cash, cash equivalents and marketable securities of $597.3$1,253.5 million. Our cash and cash equivalents primarily consist of bank deposits and money market accounts. Our marketable securities generally consist of highly rated debt instruments of the U.S. government and its agencies, debt instruments of highly rated corporations, and debt instruments issued by foreign governments. We have generated significant operating losses as reflected in our accumulated deficit of $980.1 million. We expect to continue to incur operating lossesgovernments, and negative cash flows from operations in the near future and may require additional capital resources to execute strategic initiatives to grow our business.


In October 2015, we completed our initial public offering of Class A common stock, in which we sold 28,750,000 shares, including 3,750,000 shares from the full exercise of the underwriters’ overallotment option. 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. We also incurred offering costs of $4.5 million.asset-backed securities.
We believe our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating and capital needs for at least the next 12 months. Our future capital requirements will depend on many factors including our sales growth, rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing and international operation activities, the addition or closure of office space, the timing of new product introductions and the continuing market acceptance of our products and services.services, the volume and timing of our share repurchases, the timing and settlement election of the Notes, and any potential impacts of the COVID-19 pandemic on our business which has resulted in reduced sales and certain of our customers or partners being unable to timely fulfill their payment obligations to us. We may in the futurecontinue to enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. For example, we acquired a portfolio of technology patentsPortworx for $1.0$352.9 million during the year ended January 31, 2017.in October 2020. We may be required to seek additional equity or debt financing. financing in the future.
Revolving Credit Facility
In August 2020, we entered into a Credit Agreement with a consortium of financial institutions and lenders that provides for a five-year, senior secured revolving credit facility of $300.0 million (Credit Facility). Proceeds from the event that additional financing is required from outside sources, weCredit Facility may not be ableused for general corporate purposes and working capital. The Credit Facility expires, absent default or early termination by us, on the earlier of (i) August 24, 2025 or (ii) 91 days prior to raise itthe stated maturity of the convertible senior notes unless, on terms acceptablesuch date and each subsequent day until the convertible senior notes are paid in full, the sum of our cash, cash equivalents and marketable securities and the aggregate unused commitments then available to us exceed $625.0 million. The annual interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.50% to 1.25% or LIBOR (based on one, three, or six-month interest periods), subject to a floor of 0%, plus a margin ranging from 1.50% to 2.25%. Interest on revolving loans is payable quarterly in arrears with respect to loans based on the base rate and at all. If wethe end of an interest period in the case of loans based on LIBOR (or at each three-month interval, if the interest period is longer than three months). We are unablealso required to raise additional capital when desired,pay a commitment fee on the unused portion of the commitments ranging from 0.25% to 0.40% per annum, payable quarterly in arrears that commenced on September 30, 2020. Loans under the Credit Facility are collateralized by substantially all of our business, operating resultsassets and subject to certain restrictions and two financial condition would be adversely affected.
Asratios measured as of the last day of each fiscal quarter, commencing with the fiscal quarter ending January 31, 20172021: a Consolidated Leverage Ratio not to exceed 4.5:1 and 2018,an Interest Coverage Ratio not to be less than 3:1.
In September 2020, we drew down $250.0 million under the Credit Facility to fund the acquisition of Portworx which remained outstanding at the end of fiscal 2021. The outstanding loan bore weighted-average interest at the one-month LIBOR of approximately 1.65%. Assuming interest rates remain relatively constant and no repayment, we expect our annual interest expense for the outstanding borrowing under the revolver to be approximately $4.1 million. We were in compliance with all covenants under the Credit Facility at the end of fiscal 2021.
Letters of Credit
At the end of fiscal 2020 and 2021, we had outstanding letters of credit in the aggregate amount of $7.7$11.5 million and $9.6$6.7 million in connection with our facility leases. The letters of credit are collateralized by restricted cash and mature aton various dates through August 2026.2029.
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Convertible Senior Notes
In MarchApril 2018, we amendedissued $575.0 million of 0.125% convertible senior notes due 2023 (the Notes), in a private placement and received proceeds of $562.1 million, after deducting the underwriters' discounts and commissions. The Notes are unsecured obligations that do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our Mountain View, California lease signedsubsidiaries. The Notes mature on April 15, 2023 unless repurchased or redeemed by us or converted in accordance with their terms prior to the maturity date. The Notes are convertible for up to 21,884,155 shares of our common stock at an initial conversion rate of approximately 38.0594 shares of common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $26.27 per share of common stock, subject to adjustment.
Holders may surrender their Notes for conversion at their option at any time prior to the close of business on the business day immediately preceding October 15, 2022, only under specific circumstances. On or after October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time regardless of the foregoing conditions. Upon conversion, holders will receive cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. We intend to settle the principal of the Notes in cash. See further discussion in Note 7 in Part II, Item 8 of this report.
Share Repurchase Program
In August 20172019, our board of directors approved a stock repurchase program to addrepurchase up to $150.0 million of our common stock, which was substantially completed in the fourth quarter of fiscal 2021. In February 2021, our board of directors authorized the repurchase of up to an additional $200.0 million of our common stock. The authorization allows us to repurchase shares of our common stock opportunistically and will be funded from available working capital. Repurchases may be made at management’s discretion from time to time on the open market through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a ten-year leasecombination of the foregoing. The share repurchase program does not obligate us to acquire any of our common stock, has no end date, and may be suspended or discontinued by us at any time without prior notice. During fiscal 2020, we repurchased and retired 867,657 shares of common stock at an average purchase price of $17.29 per share for an additional 31,571 square feetaggregate repurchase price of office space$15.0 million. During fiscal 2021, we repurchased and retired 9,526,556 shares of common stock at an average purchase price of $14.17 per share for a total rent obligation and management feesan aggregate repurchase price of approximately $34.8 million. In connection with this lease amendment, we issued a letter of credit of $1.5$135.0 million.
The following table summarizes our cash flows for the periods presented:presented (in thousands):
 
Fiscal Year Ended
Year Ended January 31,201920202021
2016 2017 2018
(in thousands)
Net cash provided by (used in) operating activities$(7,856) $(14,362) $72,756
Net cash provided by operating activitiesNet cash provided by operating activities$164,423 $189,574 $187,641 
Net cash used in investing activities(41,840) (447,223) (59,188)Net cash used in investing activities(511,344)(324,711)(418,109)
Net cash provided by financing activities461,731
 40,518
 46,814
Net cash provided by financing activities551,914 49,246 200,237 
Operating Activities
Net cash provided by operating activities during the year ended January 31, 2018 was $72.8 million, which resulted from net cash inflows of $35.9 million from changes in operating assets and liabilities, as well as non-cash addback of $212.4 million ($150.7 million in stock-based compensation expense and $61.7 million in depreciation and amortization), which more than offset our net loss of $177.6 million. The net cash inflows from changes in operating assets and liabilitiesfiscal 2021 was primarily driven by cash collections from sales of our product and subscription services including certain invoices with extended payment terms and deferral of the resultemployer portion of a $102.9 million increase in deferred revenue and $55.9 million increases in accounts payable and accrued compensation and other liabilities,social security payroll tax under the CARES Act, partially offset by a $74.5 million increase in accounts receivable, $23.8 million increase in prepaid expenses and other assets, $12.6 million increase in inventory, and a $12.0 million increase in deferred commissions. The increases in accounts receivable, deferred revenue, and deferred commissions were primarily attributablepayments to revenue growth during the year ended January 31, 2018. The increases in accounts payable, accruedour contract manufacturers, employee compensation, and other liabilities, inventory,general corporate operating expenditures.
Net cash provided by operating activities during fiscal 2019 and prepaid expenses and other assets are2020was primarily driven by increased activitiescash collections related to support overall business growth.
Net cash used in operating activities during the year ended January 31, 2017 was $14.4 million which resulted from a net losssales of $245.1 million, including a $30.0 million one-time legal settlement payment,our product and subscription services, partially offset by non-cash charges for stock-based compensation expense of $116.7 million, $50.2 million for depreciation and amortization and net cash inflows of $62.2 million from changes in operating assets and liabilities. The net cash inflows from changes in operating assets and liabilities was primarily the result of a $86.9 million increase in deferred revenue and a $30.0 million increase in accruedpayments to our contract manufacturers, employee compensation, and other liabilities and accounts payable, partially offset by a $44.0 million increase in accounts receivable, $6.1 million increase in prepaid expenses and other assets and $3.8 million increase in inventory. The increases in accounts receivable and deferred revenue was primarily due to new sales order growth during the year ended January 31, 2017. The increases in inventory, accrued compensation and other liabilities and accounts payable were primarily attributed to increased activities to support overall business growth. general corporate operating expenditures.




Net cash used in operating activities during the year ended January 31, 2016 was $7.9 million, which resulted from a net loss of $213.8 million, partially offset by non-cash charges for stock-based compensation expense and contribution of common stock to the Pure Good Foundation of $58.2 million and $11.9 million, $32.3 million for depreciation and amortization and net cash inflows of $104.6 million from changes in operating assets and liabilities. The net cash inflows from changes in operating assets and liabilities was primarily the result of a $142.5 million increase in deferred revenue, a $49.6 million increase in accrued compensation and other liabilities and accounts payable and a $1.5 million decrease in inventory, partially offset by a $67.3 million increase in accounts receivable, $13.0 million increase in deferred commissions and $8.7 million increase in prepaid expenses and other assets. The increases in accounts receivable, deferred revenue and deferred commissions were primarily due to new sales order growth during the year ended January 31, 2016. The increases in accrued compensation and other liabilities and accounts payable were primarily attributed to increased activities to support overall business growth. In addition, the increase in accrued compensation and other liabilities is partially attributable to $12.5 million of employee contributions in connection with our first offering under our 2015 Employee Stock Purchase Plan (2015 ESPP).
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Investing Activities
Net cash used in investing activities during the year ended January 31, 2018fiscal 2021 of $59.2$418.1 million resulted fromwas driven by net cash paid for our acquisition of Portworx of $339.6 million in October 2020, and capital expenditures of $65.1$95.0 million, and an increase in restricted cash of $2.0 million primarily related to security deposits for office space, partially offset by the net proceeds from sales and maturities of marketable securities of $7.9$21.5 million.
Net cash used in investing activities during the year ended January 31, 2017fiscal 2020 of $447.2$324.7 million resulted from net purchases of marketable securities of $363.9$176.3 million, capital expenditures of $76.8$87.8 million, an increase in restrictedand net cash paid for acquisitions of $5.6$51.6 million, related to a vendor credit card program and security deposit for office space, as well as the purchaseintangible assets acquired of a portfolio of technology patents for $1.0$9.0 million.
Net cash used in investing activities during the year ended January 31, 2016fiscal 2019 of $41.8$511.3 million resulted primarily from net purchases of marketable securities of $392.2 million, capital expenditures of $39.4$100.2 million and an increase in restrictednet cash related to security depositspaid for new office spacesour acquisition of $2.5StorReduce of $13.9 million.
Financing Activities
Net cash provided by financing activities of $46.8$200.2 million during the year ended January 31, 2018fiscal 2021 was primarily due to $24.7driven by $251.9 million of net proceeds from borrowings primarily under our revolving line of credit, $59.4 million of proceeds from the exercise of stock options, and $22.1$32.4 million of proceeds from issuance of common stock under ESPP.our employee stock purchase plan (ESPP), partially offset by share repurchases of $135.2 million, and $8.3 million in tax withholdings on vesting of equity awards.
Net cash provided by financing activities of $40.5$49.2 million during the year ended January 31, 2017fiscal 2020 was primarily due to $25.6$43.3 million of proceeds from issuance of common stock under our ESPP and $14.9 million of proceeds from the exercise of stock options.
Net cash provided by financing activities of $461.7 million during the year ended January 31, 2016 was primarily due to $459.4 million in net proceeds from our IPO and $6.0 $42.9 million of proceeds from the exercise of stock options, partially offset by paymentsrepurchases of IPO costsour common stock for $15.0 million under the share repurchase program, the repayment of $3.7 million.$11.6 million of debt assumed in connection with our acquisition of Compuverde, and $10.4 million in tax withholdings on vesting of restricted stock.
Net cash provided by financing activities of $551.9 million during fiscal 2019 was primarily due to $562.1 million of net proceeds from the issuance of the Notes, $47.8 million of proceeds from the exercise of stock options and $33.4 million of proceeds from issuance of common stock under our ESPP, partially offset by payment for the purchase of capped calls of $64.6 million, the repurchase of our common stock for $20.0 million in connection with the Notes and the repayment of $6.1 million of debt assumed in connection with our acquisition of StorReduce.
 
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Contractual Obligations and Commitments
The following table sets forth our non-cancellablenon-cancelable contractual obligations asand commitments at the end of fiscal 2021.
Payment Due by Period
TotalLess Than
1 Year		1-3 Years3-5 YearsMore Than
5 Years
(in thousands)
Debt obligations (1)
$851,604 $6,322 $587,075 $258,207 $— 
Operating leases (2)
179,082 40,110 68,311 46,290 24,371 
Purchase obligations (3)
251,761 178,104 67,890 5,767 — 
Total$1,282,447 $224,536 $723,276 $310,264 $24,371 

(1) Consists of (i) principal and interest payments on our convertible senior notes due 2023, (ii) principal, interest, and unused commitment fees on our August 2020 revolving credit facility based on debt outstanding and rates in effect at January 31, 2018.2021, and (iii) principal and interest on a five year loan.
(2) Represents aggregate future minimum lease payments under non-cancelable operating leases.
  Payment Due by Period
  Total Less Than
1 Year		 1-3 Years 3-5 Years More Than
5 Years
  (in thousands)
Operating leases $112,999
 $19,321
 $38,710
 $31,241
 $23,727
Purchase obligations 26,825
 6,742
 20,083
 —
 —
Total $139,824
 $26,063
 $58,793
 $31,241
 $23,727
(3) Includes primarily non-cancellable inventory purchase commitments, software service and sponsorship contracts, and hosting arrangements.
Purchase orders are not included in the table above. Our purchase ordersabove as they represent authorizations to purchase rather than binding agreements. The contractual commitment amounts in the table above are associated with


agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
In MarchApril 2018, we amendedissued $575.0 million of 0.125% convertible senior notes due 2023 in a private placement and received proceeds of $562.1 million, after deducting the underwriters' discounts and commissions. The Notes are unsecured obligations that do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our Mountain View, California lease signedsubsidiaries. In September 2020, we drew down $250.0 million under a five-year, senior secured $300.0 million revolving credit facility which remained outstanding at the end of fiscal 2021. See further discussion in August 2017 to add a ten-year lease for an additional office space for a total rent obligation and management feesNote 7 in Part II, Item 8 of approximately $34.8 million. In connection with this lease amendment, we issued a letter of credit of $1.5 million.annual report.
Off-Balance Sheet Arrangements
Through January 31, 2018,the end of fiscal 2021, we did not have any relationships with any entities or financial partnerships, such as structured finance or special purpose entities established for the purpose of facilitating off-balance sheet arrangements or other purposes.
Provision for Income Taxes
As of January 31, 2018, we had U.S. federal and state net operating loss (NOL) carryforwards of $508.9 million and $331.9 million, that expire commencing in 2028. Under Section 382 of the U.S. Internal Revenue Code of 1986, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. In February 2018, we completed an analysis through January 2018 to evaluate whether there are any limitations of our NOLs and concluded no limitations currently exist.  While we do not have any limitations currently existing, an ownership change that would result in limitations, regulatory changes, such as suspension on the use of NOLs, could result in the expiration of our NOLs or otherwise cause them to be unavailable to offset future income tax liabilities.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
The critical accounting estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below.
Revenue Recognition
We derivegenerate revenue primarily from two sources: (1) product revenue which includes hardware and embedded software and (2) supportsubscription services revenue which includes customer support, hardware maintenance and software upgrades on a when-and-if-available basis.
We recognize revenue when:
Persuasive evidence of an arrangement exists—We rely upon sales agreements and/or purchase orders to determine the existence of an arrangement.
Delivery has occurred—We typically recognize product revenue upon shipment, as title and risk of loss are transferred toEvergreen Storage subscriptions, our channel partners atunified subscription that time. Products are typically shipped directly by us to customers, includes Pure as-a-Service and our channel partners do not stock our inventory.
The fee is fixed or determinable—We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction.
Collection is reasonably assured—We assess collectability based on credit analysis and payment history.
Cloud Block Store.
Our product revenue is derived from the sale of integrated storage hardware and operating system software that is integrated into the hardware and therefore deemed essentialsoftware. We typically recognize product revenue upon transfer of control to its functionality. The hardware and the operating system software essentialour customers. Products are typically shipped directly by us to the functionality of the hardware are considered non-software deliverables and, therefore, are not subject to industry-specific software revenue recognition guidance.customers.

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SupportOur subscription services revenue is derived from the services we perform in connection with the sale of maintenancesubscription services and support agreements. Maintenanceis recognized ratably over the contractual term, which generally ranges from one to six years. The majority of our product solutions are sold with an Evergreen Storage subscription service agreement, which typically commences upon transfer of control of the corresponding products to our customers. Costs for subscription services are expensed when incurred. In addition, our Evergreen Storage subscription provides our customers with a new controller based upon certain contractual terms. The controller refresh represents a separate performance obligation that is included within the Evergreen Storage subscription service agreement and support agreementsthe allocated revenue is recognized upon shipment of the controller.
Our subscription services also include the right to receive unspecified software upgradesupdates and enhancementsupgrades on a when-and-if-available basis, software bug fixes, replacement parts replacementand other services related to the hardware,underlying infrastructure, as well as access to our cloud-based management and support platform. RevenueWe also sell professional services such as installation and implementation consulting services and the related to maintenance and support agreements are recognized ratably over the contractual term, which generally range from 1 to 5 years. Costs related to maintenance and support agreements are expensed as incurred. In addition, our Evergreen Storage program provides our customers who continually maintain active maintenance and support for three years with an included controller refresh with each additional three year maintenance and support renewal. In accordance with multiple-element arrangement accounting guidance, the controller refresh represents an additional deliverable that is a separate unit of accounting. The allocated revenue is recognized andas services are performed.
We recognize revenue upon the related costtransfer of promised goods or services to customers in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services. This is expensedachieved through applying the following five-step approach:
•Identification of the contract, or contracts, with a customer
•Identification of the performance obligations in the period in which these controllers are shipped.contract
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 allocate consideration to support related deliverables based on VSOE and to all other deliverables based on BESP as TPE typically cannot be obtained.
VSOE—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•Determination of the stand-alone selling prices fall withintransaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, we satisfy a reasonably narrow pricing range.
performance obligation
TPE—When VSOE cannot be established for deliverables in multiple-element arrangements,applying this five-step approach, we apply judgment with respectin determining the customer's ability and intention to whether we can establish a selling pricepay, which is based on TPE. TPEa variety of factors including the customer's historical payment experience and/or published credit and financial information pertaining to the customer. To the extent a customer contract includes multiple promised goods or services, we determine whether promised goods or services should be accounted for as a separate performance obligation. The transaction price is determined based on competitor pricesthe consideration which we will be entitled to in exchange for interchangeable productstransferring goods or services whento the customer. We allocate the transaction price to each performance obligation for contracts that contain multiple performance obligations based on a relative standalone selling price which is determined based on the price at which the performance obligation is sold separately, or if not observable through past transactions, is estimated taking into account available information such as market conditions and internally approved pricing guidelines related to similarly situated customers. However, because our products contain a significant element of proprietary technologyperformance obligations.
Business Combinations, Goodwill and our solutions offer substantially different featuresAcquisition-Related Intangible Assets
We allocate the purchase price to the intangible and functionality, the comparable pricing of products with similar functionality typically cannot be obtained.
BESP—When neither VSOE nor TPE can be established, we utilize BESP to allocate consideration to deliverablestangible assets acquired and liabilities assumed in a multiple element arrangement. Ourbusiness combination at their estimated fair values on the date of acquisition, with the excess recorded to goodwill. We use our best estimates and assumptions to assign fair value to the assets acquired and liabilities assumed as well as the useful lives of the acquired intangible assets. Examples of critical estimates in valuing certain intangible assets we have acquired include, but are not limited to, future expected cash flows, expected technology life cycle, attrition rates of customers, and discount rates. We estimate the useful lives of each intangible asset based on the expected period over which we anticipate generating economic benefit from the asset. The amounts and useful lives assigned to acquired intangible assets impact the amount and timing of future amortization expense.
While we use our best estimates and assumptions as part of the purchase price allocation process to determine our BESP for productsvalue assets acquired and services is based on qualitativeliabilities assumed, these estimates are inherently uncertain and quantitative considerations of multiple factors,subject to refinement. As a result, during the measurement period, which primarily include historical sales, margin objectives and discount behavior. Additional considerations are givenmay be up to other factors such as customer demographics, costs to manufacture products or provide services, pricing practices and market conditions.
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 recognizedone year from the related customer contract. Amortizationacquisition date, we may record adjustments to the estimated fair value of deferred commissions is included in salesthe assets acquired and marketing expense inliabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to the consolidated statements of operations.
Stock-Based Compensation
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We measureuse estimates, assumptions, and recognize compensation expensejudgments when assessing the recoverability of goodwill and acquisition-related intangible assets. We test for all stock-based awards granted to our employees, including restricted stock units (RSUs), stock options and purchase rights granted under our 2015 ESPP, basedimpairment on an annual basis, or more frequently if a significant event or circumstance indicates the carrying amounts may not be recoverable. We also evaluate the estimated fair valueremaining useful lives of acquisition-related intangible assets for changes in circumstances that warrant a revision to the remaining periods of amortization. If the useful life of the award onintangible asset is shorter than originally estimated, we accelerate the grant date. We userate of amortization and amortize the Black-Scholes option pricing model to estimate the fairremaining carrying value of stock option awards and purchase rights granted under our 2015 ESPP. RSUs are measured at the fair market value of the underlying stock at the grant date. We recognize the fair value of stock options, RSUs and purchase rights granted under our 2015 ESPP as stock-based compensation expense on a straight line basis over the requisite service period or, in the case of purchase rights granted under our 2015 ESPP, over the offering period. For stock-based awards granted to employees with a performance condition, we recognize stock-based compensation expense for these awards under the accelerated attribution method over the requisite service period when management determines it is probable that the performance condition will be satisfied. Subsequent to the early adoption of ASU 2016-09 that became effective on February 1, 2016, we account for forfeitures as they occur.new shorter useful life.


Our use of the Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, expected term of the option, expected volatility of the price of our common stock, risk-free interest rates and the expected dividend yield of our common stock. The assumptions used in our option pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment.
These assumptions and estimates are as follows:
Fair Value of Common Stock. Prior to our IPO in October 2015, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date including, (i) contemporaneous valuations of common stock performed by unrelated third-party specialists; (ii) recent private stock sales transactions; (iii) the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock; (iv) the lack of marketability of our common stock; (v) developments in the business; (vi) the likelihood of achieving a liquidity event, such as an IPO or a merger or acquisition of our business, given prevailing market conditions; and (vii) the market performance of comparable publicly traded companies.
Subsequent to our IPO, we use the market closing price for our Class A common stock as reported on the New York Stock Exchange on the date of grant.
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 vesting terms, exercise terms and contractual lives of the options and ESPP purchase rights.
Expected Volatility. Since we have limited trading history of our common stock, the expected volatility was determined based on the historical stock volatilities of our comparable companies. Comparable companies consist of public companies in our industry which are similar in size, stage of life cycle and financial leverage. We intend to continue to apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be used in the calculation.
Risk-Free Interest Rate. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options and 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.
See Note 7 of our Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for other information regarding the assumptions used in the Black-Scholes option-pricing model to determine the fair value of our stock options and ESPP purchase rights.
We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis.
Recent Accounting Pronouncements
Refer to “Recent Accounting Pronouncements” in Note 2 of our Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We have operations both within the United States and internationally, and we are exposed to market risk in the ordinary course of our business.
Interest Rate Risk
Our cash, cash equivalents and marketable securities primarily consist of bank deposits and money market accounts, highly rated debt instruments of the U.S. government, notes and U.S. agency notes, andits agencies, debt instruments of highly rated corporate debt. Ascorporations, debt instruments issued by foreign governments, and asset-backed securities. At the end of January 31, 2017fiscal 2020 and 2018,2021, we had cash, cash equivalents and marketable securities of $546.7$1,299.2 million and $597.3$1,253.5 million. The carrying amount of our cash equivalents reasonably approximates fair value, due to the short maturities of these instruments. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes.


Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments.
We considered the historical volatility of short-term interest rates and determined that it was reasonably possible that an adverse change of 100 basis points could be experienced in the near term. A hypothetical 1.00% (100 basis points) increase in interest rates would have resulted in a decrease in the fair value of our marketable securities of approximately $3.3$10.7 million as of January 31, 2018.the end of fiscal 2021.
Foreign Currency Exchange Risk
Our sales contracts are primarily denominated in U.S. dollars with a proportionally small number of contracts denominated in foreign currencies. A portion of our operating expenses are incurred outside the United States and denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British pound and Euro. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. Given the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into any derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency exchange should become more significant.
We considered the historical trends in currency exchange rates and determined that it was reasonably possible that adverse changes in exchange rates of 10% offor all currencies could be experienced in the near term. These reasonably possible adverse changes in exchange rates of 10% were applied to total monetary assets and liabilities denominated in currencies other than U.S. dollar at January 31, 2018the end of fiscal 2021 to compute the adverse impact these changes would have had on our loss before income taxes in the near term. These changes would have resulted in an adverse impact on loss before provision for income taxes of approximately $16.9$6.9 million asat the end of January 31, 2018.

fiscal 2021.

53

Item 8. Financial Statements and Supplementary Data.
PURE STORAGE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
Page
5155
5358
5459
5560
5661
5762
5863




54

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Pure Storage, Inc.



Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Pure Storage, Inc. and its subsidiaries (the "Company") as of February 2, 2020 and January 31, 20172021, and 2018, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders' equity, (deficit), and cash flows, for each of the three years in the period ended January 31, 2018,2021, and the related notes (collectively referred to as the "financial statements").
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 2, 2020 and January 31, 2017 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2018,2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 31, 2018,2021, based on criteria established in Internal Control - —Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 26, 2018,24, 2021 expressed an unqualified opinion on the Company's internal control over financial reporting.


Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Business Combinations—Valuation of Acquired Intangible Assets —Refer to Notes 2, 4, and 5 to the financial statements.
Critical Audit Matter Description
In October 2020, the Company completed the acquisition of Portworx Inc. ("Portworx"). The Company accounted for the acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective estimated fair values, including identified intangible assets of $31.4 million related to developed technology, customer relationships, and trade name. The determination of the fair value of the intangible assets required management to make significant estimates and assumptions related to forecasted revenue growth.
55

We identified valuation of the intangible assets as a critical audit matter because of the significant judgments related to forecast revenue growth made by management to estimate its fair value. Considering the limited historical sales information, this required a high degree of auditor judgment and an increase extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasted revenue growth.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasted revenue growth included the following, among others:
•We tested the effectiveness of controls over the valuation of the acquired intangible assets, which included the review of key inputs such as forecasted revenue growth.
•We evaluated the reasonableness of management’s forecasted revenue growth by performing a comparison of the forecasted revenue against various sources, including:
–Forecasted information for certain peer companies;
–Industry data and analyst reports; and
–Internal communications to management and the Board of Directors.

/S/ DELOITTEs/ Deloitte & TOUCHETouche LLP
San Jose, California
March 26, 201824, 2021


We have served as the Company's auditor since 2013.



56


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the stockholders and the Board of Directors of Pure Storage, Inc.


Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Pure Storage, Inc. and subsidiaries (the "Company") as of January 31, 2018,2021, based on criteria established in Internal Control - —Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2018,2021, based on criteria established in Internal Control - —Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended January 31, 2018,2021, of the Company and our report dated March 26, 201824, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/S/ DELOITTEs/ Deloitte & TOUCHETouche LLP
San Jose, California
March 26, 201824, 2021

57



PURE STORAGE, INC.
Consolidated Balance Sheets
(in thousands, except per share data)
 At the End of Fiscal
 20202021
ASSETS  
Current assets:  
Cash and cash equivalents$362,635 $337,147 
Marketable securities936,518 916,388 
Accounts receivable, net of allowance of $542 and $1,033458,643 460,879 
Inventory38,518 46,733 
Deferred commissions, current37,148 57,183 
Prepaid expenses and other current assets56,930 89,836 
Total current assets1,890,392 1,908,166 
Property and equipment, net122,740 163,041 
Operating lease right-of-use assets112,854 134,668 
Deferred commissions, non-current102,056 130,741 
Intangible assets, net58,257 76,648 
Goodwill37,584 358,736 
Restricted cash15,287 10,544 
Other assets, non-current25,034 36,896 
Total assets$2,364,204 $2,819,440 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$77,651 $67,530 
Accrued compensation and benefits106,592 160,817 
Accrued expenses and other liabilities47,223 61,754 
Operating lease liabilities, current27,264 32,231 
Deferred revenue, current356,011 438,321 
Total current liabilities614,741 760,653 
Long-term debt477,007 755,814 
Operating lease liabilities, non-current92,977 120,361 
Deferred revenue, non-current341,277 405,376 
Other liabilities, non-current8,084 27,230 
Total liabilities1,534,086 2,069,434 
Commitments and contingencies (Note 8)00
Stockholders’ equity:  
Preferred stock, par value of $0.0001 per share— 20,000 shares authorized; 0 shares issued and outstanding0 0 
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; 264,008 and 278,363 Class A shares issued and outstanding26 28 
Additional paid-in capital2,107,579 2,307,580 
Accumulated other comprehensive income5,449 7,410 
Accumulated deficit(1,282,936)(1,565,012)
Total stockholders’ equity830,118 750,006 
Total liabilities and stockholders’ equity$2,364,204 $2,819,440 
 January 31,
 2017 2018
ASSETS 
  
Current assets: 
  
Cash and cash equivalents$183,675
 $244,057
Marketable securities362,986
 353,289
Accounts receivable, net of allowance of $2,000 and $1,062 as of January 31, 2017 and 2018168,978
 243,001
Inventory23,498
 34,497
Deferred commissions, current15,787
 22,437
Prepaid expenses and other current assets25,157
 47,552
Total current assets780,081
 944,833
Property and equipment, net81,695
 89,142
Intangible assets, net6,560
 5,057
Deferred income taxes, non-current844
 1,060
Other assets, non-current30,565
 39,315
Total assets$899,745
 $1,079,407
LIABILITIES AND STOCKHOLDERS’ EQUITY 
  
Current liabilities: 
  
Accounts payable$52,719
 $84,420
Accrued compensation and benefits39,252
 59,898
Accrued expenses and other liabilities21,697
 26,829
Deferred revenue, current158,095
 209,377
Liability related to early exercised stock options1,362
 320
Total current liabilities273,125
 380,844
Deferred revenue, non-current145,031
 196,632
Other liabilities, non-current3,159
 4,025
Total liabilities421,315
 581,501
Commitments and contingencies (Note 5)

 

Stockholders’ equity: 
  
Preferred stock, par value of $0.0001 per share— 20,000 shares
   authorized as of January 31, 2017 and 2018; no shares issued and
   outstanding as of January 31, 2017 and 2018		—
 —
Class A and Class B common stock, par value of $0.0001 per share— 2,250,000 (Class A 2,000,000, Class B 250,000) shares authorized as of January 31, 2017 and 2018; 204,364 (Class A 87,027, Class B 117,337) and 220,979 (Class A 129,502, Class B 91,477) shares issued and outstanding as of January 31, 2017 and 201820
 22
Additional paid-in capital1,281,452
 1,479,883
Accumulated other comprehensive loss(562) (1,917)
Accumulated deficit(802,480) (980,082)
Total stockholders’ equity478,430
 497,906
Total liabilities and stockholders’ equity$899,745
 $1,079,407

See the accompanying notes to the consolidated financial statements.

58


PURE STORAGE, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
 
Fiscal Year Ended
Year Ended January 31,201920202021
2016 2017 2018
Revenue: 
  
  
Revenue:   
Product$375,733
 $590,001
 $813,985
Product$1,075,586 $1,238,654 $1,144,098 
Support64,600
 137,976
 209,034
Subscription servicesSubscription services284,238 404,786 540,081 
Total revenue440,333
 727,977
 1,023,019
Total revenue1,359,824 1,643,440 1,684,179 
Cost of revenue: 
  
  Cost of revenue: 
Product132,870
 194,150
 275,242
Product352,054 362,970 352,987 
Support35,023
 58,129
 78,539
Subscription servicesSubscription services105,474 146,916 182,268 
Total cost of revenue167,893
 252,279
 353,781
Total cost of revenue457,528 509,886 535,255 
Gross profit272,440
 475,698
 669,238
Gross profit902,296 1,133,554 1,148,924 
Operating expenses: 
  
  Operating expenses: 
Research and development166,645
 245,817
 279,196
Research and development349,936 433,662 480,467 
Sales and marketing240,574
 360,035
 480,030
Sales and marketing584,111 728,022 716,014 
General and administrative75,402
 84,652
 95,170
General and administrative137,506 163,153 182,477 
Legal settlement—
 30,000
 —
Restructuring and otherRestructuring and other0 0 30,999 
Total operating expenses482,621
 720,504
 854,396
Total operating expenses1,071,553 1,324,837 1,409,957 
Loss from operations(210,181) (244,806) (185,158)Loss from operations(169,257)(191,283)(261,033)
Other income (expense), net(2,002) 1,627
 11,445
Other income (expense), net(8,016)(3,383)(9,127)
Loss before provision for income taxes(212,183) (243,179) (173,713)Loss before provision for income taxes(177,273)(194,666)(270,160)
Provision for income taxes1,569
 1,887
 3,889
Provision for income taxes1,089 6,321 11,916 
Net loss$(213,752) $(245,066) $(177,602)Net loss$(178,362)$(200,987)$(282,076)
Net loss per share attributable to common stockholders, basic and diluted$(2.59) $(1.26) $(0.84)Net loss per share attributable to common stockholders, basic and diluted$(0.77)$(0.79)$(1.05)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted82,460
 194,714
 211,609
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted232,042 252,820 267,824 
 
See the accompanying notes to the consolidated financial statements.

59

PURE STORAGE, INC.
Consolidated Statements of Comprehensive Loss
(in thousands)


Fiscal Year Ended
201920202021
Net loss$(178,362)$(200,987)$(282,076)
Other comprehensive income, net of tax:
Unrealized net gains on available-for-sale securities1,562 6,510 3,213 
Reclassification adjustment for net (gains) losses on available-for-sale securities included in net loss17 (723)(1,252)
Change in unrealized net gains on available-for-sale securities1,579 5,787 1,961 
Comprehensive loss$(176,783)$(195,200)$(280,115)
 Year Ended January 31,
 2016 2017 2018
Net loss$(213,752) $(245,066) $(177,602)
Other comprehensive loss:     
Change in unrealized net loss on available-for-sale securities—
 (562) (1,355)
Comprehensive loss$(213,752) $(245,628) $(178,957)

See the accompanying notes to consolidated financial statements.




60

PURE STORAGE, INC.
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands)
 Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive Income
(Loss)		Accumulated DeficitTotal Stockholders' Equity
 SharesAmount
Balance at the end of fiscal 2018220,979 $22 $1,479,883 $(1,917)$(903,587)$574,401 
Issuance of common stock upon exercise of stock options9,397 1 47,749 — — 47,750 
Stock-based compensation expense— — 210,645 — — 210,645 
Vesting of early exercised stock options— — 320 — — 320 
Vesting of restricted stock units8,378 1 (1)— — 0 
Net issuance of restricted stock2,398 — — — — — 
Tax withholding on vesting of restricted stock— — (632)— — (632)
Common stock issued under employee stock purchase plan3,381 — 33,444 — — 33,444 
Repurchase of common stock(1,009)— (20,000)— — (20,000)
Purchase of capped calls— — (64,630)— — (64,630)
Equity component of convertible senior notes, net— — 133,265 — — 133,265 
Other comprehensive income— — — 1,579 — 1,579 
Net loss— — — — (178,362)(178,362)
Balance at the end of fiscal 2019243,524 $24 $1,820,043 $(338)$(1,081,949)$737,780 
Issuance of common stock upon exercise of stock options7,770 1 42,930 — — 42,931 
Stock-based compensation expense— — 226,705 — — 226,705 
Vesting of restricted stock units9,215 1 (1)— — 0 
Net issuance of restricted stock624 — — — — — 
Tax withholding on vesting of restricted stock— — (10,379)— — (10,379)
Common stock issued under employee stock purchase plan3,743 — 43,298 — — 43,298 
Repurchases of common stock(868)— (15,017)— — (15,017)
Other comprehensive income— — — 5,787 — 5,787 
Net loss— — — — (200,987)(200,987)
Balance at the end of fiscal 2020264,008 $26 $2,107,579 $5,449 $(1,282,936)$830,118 
Issuance of common stock upon exercise of stock options9,734 1 59,509 — — 59,510 
Stock-based compensation expense— — 242,685 — — 242,685 
Vesting of restricted stock units11,241 1 (1)— — 0 
Cancellation and forfeiture of restricted stock(317)— — — — — 
Tax withholding on vesting of equity awards(490)— (8,258)— — (8,258)
Common stock issued under employee stock purchase plan3,714 — 32,439 — — 32,439 
Repurchases of common stock(9,527)— (135,175)— — (135,175)
Equity awards assumed in an acquisition— — 8,802 — — 8,802 
Other comprehensive income— — — 1,961 — 1,961 
Net loss— — — — (282,076)(282,076)
Balance at the end of fiscal 2021278,363 $28 $2,307,580 $7,410 $(1,565,012)$750,006 
 Convertible Preferred
Stock		  Common Stock Additional
Paid-In
Capital		 
Accumulated
Other
Comprehensive
Loss
 Accumulated Deficit Total Stockholders' Equity (Deficit)
 Shares Amount  Shares Amount    
Balance—January 31, 2015122,281
 $543,940
  36,465
 $4
 $41,749
 $—
 $(341,583) $(299,830)
Conversion of convertible preferred stock to common stock upon initial public offering(122,281) (543,940)  122,281
 12
 543,928
 —
 —
 543,940
Issuance of common stock upon initial public offering, net of offering costs of $4,539—
 —
  28,750
 3
 455,135
 —
 —
 455,138
Issuance of common stock to Pure Good Foundation—
 —
  700
 —
 11,900
 —
 —
 11,900
Issuance of common stock upon exercise of stock options, net of repurchases—
 —
  2,313
 —
 6,008
 —
 —
 6,008
Stock-based compensation expense—
 —
  —
 —
 58,225
 —
 —
 58,225
Vesting of early exercised stock options—
 —
  —
 —
 1,725
 —
 —
 1,725
Net loss—
 —
  —
 —
 —
 —
 (213,752) (213,752)
Balance—January 31, 2016—
 $—
  190,509
 $19
 $1,118,670
 $—
 $(555,335) $563,354
Cumulative-effect adjustment from adoption of ASU 2016-09—
 —
  —
 —
 2,079
 —
 (2,079) —
Issuance of common stock upon exercise of stock options—
 —
  10,180
 1
 15,030
 —
 —
 15,031
Stock-based compensation expense—
 —
  —
 —
 116,668
 —
 —
 116,668
Vesting of early exercised stock options—
 —
  —
 —
��3,399
 —
 —
 3,399
Vesting of restricted stock units—
 —
  1,238
 —
 —
 —
 —
 —
Common stock issued under employee stock purchase plan—
 —
  2,437
 —
 25,606
 —
 —
 25,606
Other comprehensive loss—
 —
  —
 —
 —
 (562) —
 (562)
Net loss—
 —
  —
 —
 —
 —
 (245,066) (245,066)
Balance—January 31, 2017—
 $—
  204,364
 $20
 $1,281,452
 $(562) $(802,480) $478,430
Issuance of common stock upon exercise of stock options—
 —
  8,814
 1
 24,580
 —
 —
 24,581
Stock-based compensation expense—
 —
  —
 —
 150,673
 —
 —
 150,673
Vesting of early exercised stock options—
 —
  —
 —
 1,042
 —
 —
 1,042
Vesting of restricted stock units—
 —
  5,278
 1
 (1) —
 —
 —
Common stock issued under employee stock purchase plan—
 —
  2,523
 —
 22,137
 —
 —
 22,137
Other comprehensive loss—
 —
  —
 —
 —
 (1,355) —
 (1,355)
Net loss—
 —
  —
 —
 —
 —
 (177,602) (177,602)
Balance—January 31, 2018—
 $—
  220,979
 $22
 $1,479,883
 $(1,917) $(980,082) $497,906


See the accompanying notes to the consolidated financial statements.

61


PURE STORAGE, INC.
Consolidated Statements of Cash Flows
(in thousands)
Fiscal Year Ended
Year Ended January 31, 201920202021
2016 2017 2018
CASH FLOWS FROM OPERATING ACTIVITIES     CASH FLOWS FROM OPERATING ACTIVITIES
Net loss$(213,752) $(245,066) $(177,602)Net loss$(178,362)$(200,987)$(282,076)
Adjustments to reconcile net loss to net cash used in operating activities: 
  
  
Adjustments to reconcile net loss to net cash provided by operating activities:Adjustments to reconcile net loss to net cash provided by operating activities:  
Depreciation and amortization32,254
 50,203
 61,744
Depreciation and amortization70,878 89,710 70,042 
Amortization of debt discount and debt issuance costsAmortization of debt discount and debt issuance costs21,031 27,179 29,070 
Stock-based compensation expense58,225
 116,668
 150,673
Stock-based compensation expense210,645 226,705 242,344 
Contribution of common stock to the Pure Good Foundation11,900
 —
 —
Impairment of long-lived assetsImpairment of long-lived assets0 0 7,505 
Other(1,093) 1,584
 2,054
Other(5,039)1,336 7,340 
Changes in operating assets and liabilities: 
  
  
Changes in operating assets and liabilities, net of effects of acquisitions:Changes in operating assets and liabilities, net of effects of acquisitions:  
Accounts receivable, net(67,292) (44,049) (74,505)Accounts receivable, net(135,649)(79,442)410 
Inventory1,481
 (3,776) (12,595)Inventory(12,289)2,393 (8,690)
Deferred commissions(13,021) (740) (11,997)Deferred commissions(27,660)(24,231)(48,721)
Prepaid expenses and other assets(8,704) (6,133) (23,799)Prepaid expenses and other assets(6,972)(16,734)(33,982)
Operating lease right-of-use assetsOperating lease right-of-use assets0 26,511 28,804 
Accounts payable24,901
 10,644
 29,278
Accounts payable14,293 (18,856)(14,364)
Accrued compensation and other liabilities24,710
 19,381
 26,622
Accrued compensation and other liabilities51,810 20,296 76,972 
Operating lease liabilitiesOperating lease liabilities0 (25,377)(27,318)
Deferred revenue142,535
 86,922
 102,883
Deferred revenue161,737 161,071 140,305 
Net cash provided by (used in) operating activities(7,856) (14,362) 72,756
Net cash provided by operating activitiesNet cash provided by operating activities164,423 189,574 187,641 
CASH FLOWS FROM INVESTING ACTIVITIES 
  
  
CASH FLOWS FROM INVESTING ACTIVITIES   
Purchases of property and equipment(39,355) (76,773) (65,060)Purchases of property and equipment(100,246)(87,847)(94,975)
Acquisitions, net of cash acquiredAcquisitions, net of cash acquired(13,899)(51,594)(339,641)
Purchase of intangible assets—
 (1,000) —
Purchase of intangible assets0 (9,000)0 
Purchases of marketable securities—
 (526,717) (202,656)Purchases of marketable securities(665,357)(795,580)(573,959)
Sales of marketable securities—
 114,354
 66,489
Sales of marketable securities19,878 200,251 171,530 
Maturities of marketable securities—
 48,513
 144,068
Maturities of marketable securities253,280 419,059 423,936 
Net increase in restricted cash(2,485) (5,600) (2,029)
OtherOther(5,000)0 (5,000)
Net cash used in investing activities(41,840) (447,223) (59,188)Net cash used in investing activities(511,344)(324,711)(418,109)
CASH FLOWS FROM FINANCING ACTIVITIES 
  
  
CASH FLOWS FROM FINANCING ACTIVITIES   
Proceeds from initial public offering, net of issuance costs459,425
 —
 —
Net proceeds from exercise of stock options6,008
 14,912
 24,677
Net proceeds from exercise of stock options47,771 42,899 59,339 
Proceeds from issuance of common stock under employee stock purchase plan—
 25,606
 22,137
Proceeds from issuance of common stock under employee stock purchase plan33,444 43,298 32,439 
Payments of deferred offering costs(3,702) —
 —
Proceeds from issuance of convertible senior notes, net of issuance costsProceeds from issuance of convertible senior notes, net of issuance costs562,062 0 0 
Payment for purchase of capped callsPayment for purchase of capped calls(64,630)0 0 
Proceeds from borrowings, net of issuance costsProceeds from borrowings, net of issuance costs0 0 251,892 
Repayment of debt assumed from acquisitionRepayment of debt assumed from acquisition(6,101)(11,555)0 
Tax withholding on vesting of equity awardsTax withholding on vesting of equity awards(632)(10,379)(8,258)
Repurchases of common stockRepurchases of common stock(20,000)(15,017)(135,175)
Net cash provided by financing activities461,731
 40,518
 46,814
Net cash provided by financing activities551,914 49,246 200,237 
Net increase (decrease) in cash and cash equivalents412,035
 (421,067) 60,382
Cash and cash equivalents, beginning of period192,707
 604,742
 183,675
Cash and cash equivalents, end of period$604,742
 $183,675
 $244,057
Net increase (decrease) in cash, cash equivalents and restricted cashNet increase (decrease) in cash, cash equivalents and restricted cash204,993 (85,891)(30,231)
Cash, cash equivalents and restricted cash, beginning of yearCash, cash equivalents and restricted cash, beginning of year258,820 463,813 377,922 
Cash, cash equivalents and restricted cash, end of yearCash, cash equivalents and restricted cash, end of year$463,813 $377,922 $347,691 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEARCASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR
Cash and cash equivalentsCash and cash equivalents$447,990 $362,635 $337,147 
Restricted cashRestricted cash$15,823 $15,287 $10,544 
Cash, cash equivalents and restricted cash, end of yearCash, cash equivalents and restricted cash, end of year$463,813 $377,922 $347,691 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION 
  
  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION  
Cash paid for interestCash paid for interest$371 $718 $2,279 
Cash paid for income taxes$1,118
 $2,866
 $3,090
Cash paid for income taxes$4,696 $4,824 $10,522 
Cash paid for amounts included in the measurement of lease liabilitiesCash paid for amounts included in the measurement of lease liabilities$0 $32,785 $36,980 
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING INFORMATION		 
  
  
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$6,212
 $7,414
 $9,940
Property and equipment purchased but not yet paid$13,873 $6,814 $10,979 
Operating lease right-of-use assets obtained in exchange for operating lease liabilitiesOperating lease right-of-use assets obtained in exchange for operating lease liabilities$0 $14,937 $57,471 
Acquisition consideration held back to satisfy potential indemnification claimsAcquisition consideration held back to satisfy potential indemnification claims$3,725 $0 $0 
Vesting of early exercised stock options$1,725
 $3,399
 $1,042
Vesting of early exercised stock options$320 $0 $0 
Unpaid deferred offering costs$546
 $—
 $—
Fair value of equity awards assumed in an acquisitionFair value of equity awards assumed in an acquisition$0 $0 $8,802 
See the accompanying notes to the consolidated financial statements.

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PURE STORAGE, INC.
Notes to Consolidated Financial Statements
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 are building a data platform that transforms business through a dramatic increase in performance and reduction in complexity and costs. We are headquartered in Mountain View, California and have wholly owned subsidiaries throughout the world.
Initial Public OfferingData is foundational to our customers' digital transformation and we deliver innovative and disruptive technology and data storage solutions that enable customers to maximize the value of their data.
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 IPO 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. 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.


Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the companyCompany and our wholly owned subsidiaries and have been prepared in conformity with accounting principles generally accepted in the United States (U.S. GAAP). All intercompany balances and transactions have been eliminated in consolidation.
Change in Fiscal Year End
In September 2019, we adopted a 52/53 week fiscal year consisting of four 13-week quarters ending on the first Sunday after January 30 which for fiscal 2020 was February 2, 2020 and for fiscal 2021 was January 31, 2021. The updated calendar will occasionally include a 14-week fourth quarter, which will first occur in fiscal 2022, starting on November 1, 2021 and ending on February 6, 2022. Unless otherwise stated, all dates refer to our fiscal years.
Foreign Currency
The functional currency of our foreign subsidiaries is the U.S. dollar. Transactions denominated in currencies other than the functional currency are remeasured to the functional currency at the average exchange rate in effect during the period. At the end of each reporting period, monetary assets and liabilities are remeasured using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are remeasured at historical exchange rates. Foreign currency transaction gains and losses are recorded in other income (expense), net in the consolidated statements of operations. For the years ended January 31, 2016, 2017 and 2018, we recorded net foreign currency transaction losses of $2.3 million, $2.6 million, and a net foreign currency transaction gain of $6.0 million, respectively.
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.estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment from the ongoing COVID-19 pandemic. Such estimates include, but are not limited to, the determination of best estimate ofstandalone selling price included in multiple-deliverablefor revenue arrangements sales commissions,with multiple performance obligations, useful lives of intangible assets and property and equipment, fair valuesthe period of benefit for deferred contract costs for commissions, stock-based awards,compensation, provision for income taxes including related reserves, fair value of equity assumed, intangible and contingenttangible assets acquired and liabilities among others.assumed for business combinations. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
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Concentration Risk
Financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents, marketable securities, and accounts receivable. AsAt the end of January 31, 2017fiscal 2020 and 2018, substantially all2021, the majority of our cash and cash equivalents have been invested with three3 financial institutions and such deposits exceed federally insured limits. Management believes that the financial institutions that hold our investments are financially sound and, accordingly, are subject to minimal credit risk. We define a customer as an end userentity that purchases our products and services from one of our channel partners or from us directly. OurThe majority of our revenue and accounts receivable are derived substantially from the United States across a multitude of industries. We perform ongoing evaluations to determine customer credit. AsAt the end of January 31,


2017, we had one channel partner that represented 10% or more of total accounts receivable on that date. As of January 31, 2018,fiscal 2020 and 2021, no channel partner represented 10% or more of total accounts receivable, onnet. At the end of fiscal 2020 and 2021, we had one customer that date. No single channel partner represented 12% and 10% or more of revenue for the years ended January 31, 2016 and 2018.accounts receivable, net. One channel partner represented 11% of revenue for the year ended January 31, 2017.fiscal 2019. No endchannel partner represented more than 10% of revenue for fiscal 2020 and 2021. No customer represented 10% or more of revenue for the years ended January 31, 2016, 2017 and 2018.fiscal 2019, 2020 or 2021. We rely on a limited number of contract manufacturers and suppliers of components for our contract manufacturing and certain raw material components.products. In instances where contract manufacturers and suppliers fail to perform their obligations, we may be unable to find alternative contract manufacturers and suppliers or satisfactorily deliver our products to our customers on time.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks and highly liquid investments, primarily money market accounts, purchased with an original maturity of three months or less.
Marketable Securities
We classify our marketable securities as available-for-sale (AFS) 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 consolidated balance sheets. We carry these securities at estimated fair value and record unrealized gains and losses in accumulated other comprehensive income (loss), which is reflected as a component of stockholders' equity. We evaluate our AFS debt securities with an unamortized cost basis in excess of estimated fair value to assess whether thosedetermine what amount of that difference, if any, is caused by expected credit losses. Credit-related impairment losses, not to exceed the amount that fair value is less than the amortized cost basis, are recognized through an allowance for credit losses with unrealized loss positions arechanges in the allowance for credit losses recognized as a charge to other than temporarily impaired. We consider impairments to beincome (expense), net, in the consolidated statements of operations. Any remaining impairment is included in accumulated other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recoverycomprehensive income (loss) as a component of their cost basis.stockholders' equity. Realized gains and losses from the sale of marketable securities and declines in value deemed to be other than temporary are determined based on the specific identification method. Realized gains and losses are reported in other income (expense), net in the consolidated statements of operations.
Fair Value of Financial Instruments
The carrying value of our financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximates fair value.
Accounts Receivable and Allowance
Accounts receivable are recorded at the invoiced amount, and stated at realizable value, net of an allowance for doubtful accounts. Credit is extended to customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for doubtful accounts.
We assess the collectability of the accounts by taking into consideration the aging of our trade receivables, historical experience, and management judgment. We write off trade receivables against the allowance when management determines a balance is uncollectible and no longer actively pursues collection of the receivable.
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The following table presents the changes in the allowance for doubtful accounts:
 
Fiscal Year Ended
Year Ended January 31, 201920202021
2016 2017 2018
(in thousands)  (in thousands) 
Allowance for doubtful accounts, beginning balance$210
 $944
 $2,000
Allowance for doubtful accounts, beginning balance$1,062 $660 $542 
Provision, net918
 1,394
 482
Writeoffs(184) (338) (1,420)
Provision, net of cash receivedProvision, net of cash received(79)(80)496 
Write-offsWrite-offs(323)(38)(5)
Allowance for doubtful accounts, ending balance$944
 $2,000
 $1,062
Allowance for doubtful accounts, ending balance$660 $542 $1,033 
Restricted Cash
Restricted cash is comprised of cash collateral for letters of credit related to our leases and for a vendor credit card program. AsAt the end of January 31, 2017fiscal 2020 and 2018,2021, we had restricted cash of $12.7$15.3 million and $14.8 million, which was included in other assets, non-current in the consolidated balance sheets.$10.5 million.
Inventory
Inventory consists of finished goods and component parts, which are purchased from contract manufacturers. Product demonstration units, which we regularly sell, are the primary component of our inventories. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the specific identification method for finished goods and weighted-average method for component parts. We account for excess and obsolete inventory by reducing the carrying value to the estimated net realizable value of the inventory based upon management’s assumptions about future demand and market conditions. In addition, we record a liability for firm, non-cancelable and unconditional purchase commitments with contract manufacturers and suppliers for quantities in excess of future demand forecasts consistent with excess and obsolete inventory valuations. AsAt the end of January 31, 2018,fiscal 2021, we did not record any liability related to the above. Inventory write-offs were insignificant for the years ended January 31, 2016, 2017fiscal 2019, 2020 and 2018.2021.
Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the respective assets (test equipment—24 years, computer equipment and software—2 to 34 years, furniture and fixtures—7 years). Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining lease term. Depreciation commences once the asset is placed in service.
In accordance with our accounting practices, we review the estimated useful lives of our property and equipment on an ongoing basis. In the first quarter of fiscal 2021, management determined that the estimated useful lives of its test equipment and certain computer equipment and software required revision. The estimated useful lives of test equipment and certain computer equipment and software were revised to 4 years. Previously, the estimated useful lives of these assets ranged from 2 to 3 years. The change in estimated useful lives was accounted for as a change in estimate and recognized on a prospective basis effective February 3, 2020. The effect of this change in estimate resulted in a reduction to depreciation expense of $23.6 million during fiscal 2021.
Business Combinations
We allocate the purchase price to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of the assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill. The results of operations of an acquired business is included in our consolidated financial statements from the date of acquisition. Acquisition-related expenses are expensed as incurred.
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Goodwill
Goodwill represents the excess of the purchase price consideration over the estimated fair value of the tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill is evaluated for impairment annually in the fourth quarter of our fiscal year as a single reporting unit, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. We may elect to qualitatively assess whether it is more likely than not that the fair value of our reporting unit is less than its carrying value. If we opt not to qualitatively assess, a quantitative goodwill impairment test is performed. The quantitative test compares our reporting unit's carrying amount, including goodwill, to its fair value calculated based on our enterprise value. If the carrying amount exceeds its fair value, an impairment loss is recognized for the excess. We did 0t recognize any impairment of goodwill in any of the periods presented in the consolidated financial statements.
Purchased Intangible Assets
IntangiblePurchased intangible assets with finite lives are stated at cost, net of accumulated amortization. We amortize our intangible assets on a straight-line basis over an estimated useful life of fivethree to seven years. During the year ended January 31, 2017, we acquired certain technology patents for $1.0 million, which are amortized on a straight-line basis over an estimated useful life of five years.
Impairment of Long-Lived Assets
We review our long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We measure the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If the total of the future undiscounted cash flows is less than the carrying amount of an asset, we record an impairment charge for the amount by which the carrying amount of the asset exceeds its fair market value. There have been no impairment charges recorded in any
Convertible Senior Notes
In accounting for the issuance of our convertible senior notes (the Notes), we separated the Notes into liability and equity components. The carrying amount of the periods presentedliability component was determined by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was calculated by deducting the fair value of the liability component from the principal amount of the Notes as a whole. The difference between the principal amount of the Notes and the liability component (the debt discount) is amortized to interest expense in the consolidated financial statements.statements of operations using the effective interest method over the term of the Notes. The equity component of the Notes is included in additional paid-in capital in the consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the transaction costs related to the issuance of the Notes, we allocated the total amount incurred to the liability and equity components using the same proportions as the initial carrying value of the Notes. Transaction costs attributable to the liability component were netted with the principal amount of the Notes in the consolidated balance sheets and are being amortized to interest expense in the consolidated statements of operations using the effective interest method over the term of the Notes. Transaction costs attributable to the equity component were netted with the equity component of the Notes in additional paid-in capital in the consolidated balance sheets.
Deferred Commissions
Deferred commissions consist of direct and incremental costs paid to our sales force to obtain customer contracts. Deferred commissions related to customer contracts. Theproduct revenue are recognized upon transfer of control to customers and deferred commission amountscommissions related to subscription services revenue 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 an expected useful life of six years. We determine the sameexpected useful life based on an estimated benefit period that revenue is recognized fromby evaluating our technology development life cycle, expected customer relationship period and other factors. We classify deferred commissions as current and non-current on our consolidated balance sheets based on the related customer contract.timing of when we expect to recognize the expense. Amortization of deferred commissions is included in sales and marketing expense in the consolidated statements of operations.
As of January 31, 2017 and 2018, we recorded deferred commissions, current, of $15.8 million and $22.4 million, and deferred commissions, non-current, of $14.9 million and $20.3 million, within other assets, non-current in the consolidated balance sheets. During the years ended January 31, 2016, 2017 and 2018, we recognized sales commission expenses of $47.2 million, $84.8 million, and $119.8 million, respectively.
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Revenue RecognitionOperating Leases
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.
We recognize revenue when:
Persuasive evidence ofdetermine if an arrangement exists—We rely upon sales agreements and/or purchase orderscontains a lease at inception. Lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest rate implicit in our operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the existencepresent value of an arrangement.
Delivery has occurred—We typically recognize product revenue upon shipment, as title and risk of loss are transferred to our channel partners at that time. Products are typically shipped directly by us to customers, and our channel partners do not stock our inventory.
future payments. The fee is fixed or determinable—We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction.
Collection is reasonably assured—We assess collectability based on credit analysis and payment history.
Our product revenue is derived from the sale of hardware and operating system software that is integrated into the hardware and therefore deemed essential to its functionality. The hardware and the operating system software essential to the functionality of the hardware are considered non-software deliverables and, therefore, are not subject to industry-specific software revenue recognition guidance.
Support revenue is derived from the sale of maintenance and support agreements. Maintenance and support agreements include the right to receive unspecified software upgrades and enhancementsestimated incremental borrowing rate factors in a hypothetical interest rate on a when-and-if-availablecollateralized basis bug fixes, parts replacement services related to the hardware, as well as access to our cloud-based managementwith similar terms, payments, and support platform. Revenue related to maintenance and support agreements are recognized ratably over the contractual term, which generally range from one to five years. Costs related to maintenance and support agreements are expensed as incurred. In addition, our Evergreen Storage program provides our customers who continually maintain active maintenance and support for three years with an included controller refresh with each additional three year maintenance and support renewal. In accordance with multiple-element arrangement accounting guidance, the controller refresh represents an additional deliverable that is a separate unit of accounting and the allocated revenue is recognized in the period in which these controllers are shipped.
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 allocate consideration to support related deliverables based on VSOE and to all other deliverables based on BESP as TPE typically cannot be obtained.
VSOE—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.
TPE—When VSOE cannot be established for deliverables in multiple-element arrangements, we apply judgment with respect to whether we can establish a selling price based on TPE. TPEeconomic environments. The operating lease right-of-use (ROU) asset is determined based on competitor pricesthe lease liability initially established and reduced for interchangeable productsany prepaid lease payments and any lease incentives. We account for the lease and non-lease components of operating lease contract consideration as a single lease component.
Certain of the operating lease agreements contain rent concession, rent escalation, and option to renew provisions. Rent concession and rent escalation provisions are considered in determining the lease cost. Lease cost is recognized on a straight-line basis over the lease term commencing on the date we have the right to use the leased property. We generally use the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that an extension or services when sold separatelytermination option will be exercised.
In addition, certain of our operating lease agreements contain tenant improvement allowances from our landlords. These allowances are accounted for as lease incentives and reduce our ROU asset and lease cost over the lease term.
For short-term leases with lease term no longer than twelve months, and do not include an option to similarly situated customers. However, becausepurchase the underlying asset that we are reasonably certain to exercise, we recognize rent expense in our products containconsolidated statements of operations on a significant element of proprietary technologystraight-line basis over the lease term and our solutions offer substantially different features and functionality, the comparable pricing of products with similar functionality typically cannot be obtained.
BESP—When neither VSOE nor TPE can be established, we utilize BESP to allocate consideration to deliverables in a multiple-element arrangement. Our process to determine BESP for products and support is based on qualitative and quantitative considerations of multiple factors, which primarily include historical sales, margin objectives and discount behavior. Additional considerations are given to other factors suchrecord variable lease payments as customer demographics, costs to manufacture products or provide support, pricing practices and market conditions.


incurred.
Deferred Revenue
Deferred revenue primarily consists of amounts that have been invoiced but that have not yet been recognized as revenue and primarily consists of support.performance obligations pertaining to subscription services. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the consolidated balance sheet date.dates.
Revenue Recognition
We generate revenue from 2 sources: (1) product revenue which includes hardware and embedded software and (2) subscription services revenue which includes Evergreen Storage subscriptions, and our unified subscription that includes Pure as-a-Service and Cloud Block Store.
Our product revenue is derived from the sale of integrated storage hardware and operating system software. We typically recognize product revenue upon transfer of control to our customers. Products are typically shipped directly by us to customers.
Our subscription services revenue is derived from the services we perform in connection with the sale of Evergreen Storage and Pure as-a-Service subscriptions and is recognized ratably over the contractual term, which generally ranges from one to six years. The majority of our product solutions are sold with an Evergreen Storage subscription service agreement, which typically commences upon transfer of control of the corresponding products to our customers. Costs for subscription services are expensed when incurred. In addition, our Evergreen Storage subscription provides our customers with a new controller based upon certain contractual terms. The controller refresh represents a separate performance obligation that is included within the Evergreen Storage subscription service agreement and the allocated revenue is recognized upon shipment of the controller.
Our Evergreen Storage subscription services also include the right to receive unspecified software updates and upgrades on a when-and-if-available basis, software bug fixes, replacement parts and other services related to the underlying infrastructure, as well as access to our cloud-based management and support platform. We also sell professional services such as installation and implementation consulting services and the related revenue is recognized as services are performed.
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We recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services. This is achieved through applying the following five-step approach:
•Identification of the contract, or contracts, with a customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, we satisfy a performance obligation
When applying this five-step approach, we apply judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including the customer's historical payment experience and/or published credit and financial information pertaining to the customer. To the extent a customer contract includes multiple promised goods or services, we determine whether promised goods or services should be accounted for as a separate performance obligation. The transaction price is determined based on the consideration which we will be entitled to in exchange for transferring goods or services to the customer. For contracts that contain multiple performance obligations, we allocate the transaction price to each performance obligation based on a relative standalone selling price. The standalone selling price is determined based on the price at which the performance obligation is sold separately, or if not observable through past transactions, is estimated taking into account available information such as market conditions and internally approved pricing guidelines related to performance obligations.
Warranty Costs
We generally provide a three-year warranty on hardware and a 90-day warranty on our software embedded in the hardware. Our hardware warranty provides for parts replacement for defective components and our software warranty provides for bug fixes. Our maintenance and supportEvergreen Storage subscription agreement provides for the same parts replacement that customers are entitled to under our warranty program, except that replacement parts are delivered according to targeted response times to minimize disruption to our customers’ critical business applications. Substantially all customers purchase maintenance and supportEvergreen Storage subscription agreements.
Therefore, given that substantially all our products sales are sold together with maintenance and support agreements, we generally do not have exposure related to warranty costs and no As such, the warranty reserve has been recorded.at the end of fiscal 2021 was not material.
Research and Development
Research and development costs are expensed as incurred. Research and development costs consist primarily of personnel costs including stock-basedemployee compensation expense, expensedand related expenses, prototype expenses, to the extent there is no alternative use for that equipment, consulting services, depreciation of equipment used in research and development, third-party engineering and contractor support costs, as well as allocated overhead costs.
Capitalized Internal-Use Software Development Costs
We expense costs to develop software development coststhat is externally marketed before technological feasibility is reached. We have determined that technological feasibility is reached shortly before the release of our products and as a result, the development costs incurred after the establishment of technological feasibility and before the release of those products have not been significant and accordingly, all related software development costs have been expensed as incurred.
Software development costs also include
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We capitalize (i) costs incurred related to develop or modify software solely for our internal use, including hosted applications used to deliver our support services. Capitalization beginsservices, and (ii) certain implementation costs incurred in a hosting arrangement that is a service contract when the preliminary project stage is complete, management with the relevant authority authorizes and commits to the funding of the software project, and it is probable the project will be completed and the software will be used to perform the intended function. Total costsCosts related to preliminary project activities and post implementation activities are expensed as incurred. Software development costs are capitalized to property, plant and equipment and amortized using the straight-line method over an estimated useful life of four years. Software implementation costs are capitalized to either prepaid and other current assets or other assets, non-current on our hosted applications incurred to date have been insignificantconsolidated balance sheet and as a result noamortized over the terms of the associated hosting arrangements. NaN amount of software development and implementation costs were capitalized during fiscal 2019 and 2020 and the years ended January 31, 2016, 2017amount of software development and 2018.implementation costs capitalized and the related amortization expense were not material during fiscal 2021.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expenses were $6.2 million, $10.7 million, $13.3 million and $10.3$8.1 million for the years ended January 31, 2016, 2017fiscal 2019, 2020 and 2018, respectively.2021.
Stock-Based Compensation
Stock-based compensation includes expenses related to restricted stock units (RSUs), restricted stock, stock options and purchase rights issued to employees under our ESPP.employee stock purchase plan (ESPP). RSUs and restricted stock are measured at the fair market value of the underlying stock at the grant date. We determine the fair value of our stock options under our equity plans and purchase rights issued to employees under our ESPP and our stock options under our equity plans on the date of grant utilizing the Black-Scholes option pricing model, which is impacted by the fair value of our common stock, as well as changes in assumptions regarding a number of subjective variables. These variables include the expected common stock price volatility over the term of the awards, the expected term of the awards, risk-free interest rates and expected dividend yield. RSUs are measured at the fair market value of the underlying stock at the grant date. 
We recognize stock-based compensation expense for stock-based awards on a straight-line basis over the period during which an employee is required to provide services in exchange for the award (generally the vesting period of the award). Subsequent to the adoption of Accounting Standards Update (ASU) No. 2016-09 (ASU 2016-09) on February 1, 2016, weWe account for forfeitures as they occur. For stock-based awards granted to employees with a performance condition, we recognize stock-based compensation expense for these awards under the accelerated


attribution method over the requisite service period when management determines it is probable that the performance condition will be satisfied.
Income Taxes
We account for income taxes using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance to amounts that are more likely than not to be realized.
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.
Recent
69

New Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09 or ASC 606), requiring an entity to recognize revenue when it transfers promised goods or services to customers Adopted in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASC 606 will supersede nearly all existing revenue recognition guidance under U.S. GAAP when it becomes effective. The standard permits two methods of adoptions: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of applying the standard recognized at the date of application (cumulative catch-up transition method).Fiscal 2021
We have adopted the standard using the full retrospective method beginningfollowing Accounting Standards Updates (ASUs) effective February 1, 2018, for the year ending January 31, 2019, and our historical financial information for the years ended January 31, 2017 and 2018 will be restated to conform to the new standard. The3, 2020, none of which had a material impact on our consolidated financial statements uponposition or results of operation:
ASUDescription
ASU 2016-13Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
ASU 2017-04Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
ASU 2018-13Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
ASU 2018-15Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
ASU 2019-12Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)
Recent Accounting Pronouncements Not Yet Adopted
In March 2020, the adoptionFinancial Accounting Standards Board (FASB) issued ASU 2020-04, Facilitation of the standard is primarily as follows:

An increase in total revenueEffects of $11.2 millionReference Rate Reform on Financial Reporting, which provides optional expedients and $1.8 millionexceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the years ended January 31, 2017reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and 2018 (an increase in product revenueother transactions that reference LIBOR or another reference rate expected to be discontinued because of $24.5 million and $20.5 millionreference rate reform. The amendments are effective for the years ended January 31, 2017 and 2018 and a decrease in support revenue of $13.3 million and $18.7 million for the years ended January 31, 2017 and 2018), and a decrease in deferred revenue of $30.1 million and $31.9 millionall entities as of JanuaryMarch 12, 2020 through December 31, 2017 and 2018, due to the removal of limitation on contingent revenue;
A decrease in commission expense of $12.3 million and $16.0 million for the years ended January 31, 2017 and 2018, and an increase in deferred commissions of $28.2 million and $44.2 million as of January 31, 2017 and 2018, due to a change in amortization period from contract term (typically ranging from one to five years) to an expected useful life of six years;
A decrease in loss from operations of $23.5 million and $17.8 million for the years ended January 31, 2017 and 2018, due to the changes above.
In addition, the adoption of the standard does not have a significant impact to the provision for income taxes on our consolidated statements of operations, nor does it impact net cash provided by or used in operating, investing, or financing activities on our consolidated statements of cash flows.
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, 2019.2022. We are currently evaluating the impact of this standard on our consolidated financial statements.

In August 2016,2020, the FASB issued ASU No. 2016-15 (Topic 230) Statement of Cash Flow: Classification of Certain Cash Receipts2020-06, Accounting for Convertible Instruments and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash paymentsContracts in the statement of cash flows. This standard is effective for us beginning on February 1, 2018 and will be applied on a retrospective basis. We do not expect the adoption of this standard will have a significant impact 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)an Entity's Own Equity, which requiressimplifies the recognition ofaccounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies 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 beginningguidance 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 will have a material impact 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. We do not expect the adoption of this standard will have a significant impact on our cash flow activity presented on our consolidated statements of cash flows.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718)-Scope of Modification Accounting, to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new standard, modification is required only if the fair value, the vesting conditions, or the classification of an award as equity or liability changesdiluted earnings per share (EPS) calculations as a result of the change in terms or conditions. Thisthese changes. The standard will be effective for us beginning February 1, 20187, 2022 and willcan be applied on either a prospectivefully retrospective or modified retrospective basis. We do not expect the adoption of this standard will have a significant impact on our consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and requires certain disclosures about stranded tax effects. This standard will be effective for us beginning February 1, 2019 and should be applied either in the period of adoption or retrospectively. Early adoption is permitted.permitted for fiscal years beginning after December 15, 2020. We are currently evaluating the impact of this standard on our consolidated financial statements.
In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 ("ASU 2018-05"). This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the Tax Act) pursuant to Staff Accounting Bulletin No. 18, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. We are currently evaluating the impact of this standard on our consolidated financial statements.
Reclassifications
Certain amounts in prior periods have been reclassified to conform with current period presentation.
70




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—1 - Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;
•Level II—2 - 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—3 - 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.
Cash Equivalents, Marketable Securities and Restricted Cash
We measure our cash equivalents, marketable securities and restricted cash at fair value on a recurring basis. 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 andor quoted market prices for similar instruments.
Cash Equivalents, Marketable Securities and Restricted Cash
The following tables summarize our cash equivalents, marketable securities and restricted cash by significant investment categories asand their classification within the fair value hierarchy at the end of January 31, 2017fiscal 2020 and 20182021 (in thousands):
January 31, 2017 At the End of Fiscal 2020
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash Equivalents Marketable Securities Restricted Cash Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueCash EquivalentsMarketable SecuritiesRestricted Cash
Level 1 
  
  
  
      Level 1    
Money market accounts$—
 $—
 $—
 $12,734
 $—
 $—
 $12,734
Money market accounts$— $— $— $26,355 $11,068 $0 $15,287 
Level 2 
  
  
  
      Level 2    
U.S. government treasury notes148,298
 22
 (289) 148,031
 13,226
 134,805
 —
U.S. government treasury notes323,751 2,146 0 325,897 0 325,897 0 
U.S. government agencies40,398
 2
 (159) 40,241
 —
 40,241
 —
U.S. government agencies53,930 317 (3)54,244 0 54,244 0 
Corporate debt securities185,701
 242
 (379) 185,564
 —
 185,564
 —
Corporate debt securities452,318 3,954 (1)456,271 3,001 453,270 0 
Foreign government bonds2,377
 2
 (3) 2,376
 —
 2,376
 —
Foreign government bonds14,994 147 0 15,141 0 15,141 0 
Asset-backed securitiesAsset-backed securities87,267 699 0 87,966 0 87,966 0 
Total$376,774
 $268
 $(830) $388,946
 $13,226
 $362,986
 $12,734
 Total$932,260 $7,263 $(4)$965,874 $14,069 $936,518 $15,287 
 


71

January 31, 2018 At the End of Fiscal 2021
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash Equivalents Marketable Securities Restricted Cash Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueCash EquivalentsMarketable SecuritiesRestricted Cash
Level 1 
  
  
  
      Level 1    
Money market accounts$—
 $—
 $—
 $32,057
 $17,294
 $—
 $14,763
Money market accounts$— $— $— $49,984 $39,440 $0 $10,544 
Level 2             Level 2
U.S. government treasury notes131,643
 —
 (651) 130,992
 10,172
 120,820
 —
U.S. government treasury notes339,253 3,241 (1)342,493 15,340 327,153 0 
U.S. government agencies47,229
 —
 (333) 46,896
 —
 46,896
 —
U.S. government agencies56,729 516 0 57,245 0 57,245 0 
Corporate debt securities186,506
 116
 (1,049) 185,573
 —
 185,573
 —
Corporate debt securities425,115 4,176 (33)429,258 0 429,258 0 
Foreign government bondsForeign government bonds21,486 307 0 21,793 0 21,793 0 
Asset-backed securitiesAsset-backed securities79,924 1,015 0 80,939 0 80,939 0 
Total$365,378
 $116
 $(2,033) $395,518
 $27,466
 $353,289
 $14,763
Total$922,507 $9,255 $(34)$981,712 $54,780 $916,388 $10,544 


The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):
At the End of Fiscal 2021
 Amortized CostFair Value
Due within one year$316,339 $318,019 
Due in one to five years590,828 598,369 
  Total$907,167 $916,388 
 January 31, 2018
 Amortized Cost Fair Value
Due within one year$173,537
 $173,278
Due in one to five years181,669
 180,011
  Total$355,206
 $353,289


Based on our evaluation of available evidence, we concluded that the gross unrealizedUnrealized losses on our marketabledebt securities have not been recorded into income because we do not intend to sell nor is it more likely than not that we will be required to sell these investments prior to recovery of their amortized cost basis. The decline in fair value of our debt securities is largely due to changes in credit spreads as a result of January 31, 2018 were temporarymarket conditions. The credit ratings associated with our debt securities are mostly unchanged, are highly rated and the issuers continue to make timely principal and interest payments. As a result, there was 0 impairment charge for any unrealized losses in nature.fiscal 2019 and 2020, and we had 0 credit losses recorded for fiscal 2021. The following table presents gross unrealized losses and fair values for those investments that were in a continuous unrealized loss position asat the end of January 31, 2018,fiscal 2020 and 2021, aggregated by investment category (in thousands):
At the End of Fiscal 2020
Less than 12 monthsGreater than 12 monthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
U.S. government treasury notes$0 $0 $1,000 $0 $1,000 $0 
U.S. government agencies4,998 (3)0 0 4,998 (3)
Corporate debt securities9,691 (1)0 0 9,691 (1)
Total$14,689 $(4)$1,000 $0 $15,689 $(4)

72

At the End of Fiscal 2021
Less than 12 months Greater than 12 months TotalLess than 12 monthsGreater than 12 monthsTotal
Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
U.S. government treasury notes$68,212
 $(219) $52,607
 $(432) $120,819
 $(651)U.S. government treasury notes$8,301 $(1)$0 $0 $8,301 $(1)
U.S. government agencies23,004
 (156) 23,892
 (177) 46,896
 (333)
Corporate debt securities117,165
 (732) 33,132
 (317) 150,297
 (1,049)Corporate debt securities32,996 (33)0 0 32,996 (33)
Total$208,381
 $(1,107) $109,631
 $(926) $318,012
 $(2,033) Total$41,297 $(34)$0 $0 $41,297 $(34)


Gross realizedRealized gains andor losses on sale of marketable securities were immaterialnot significant for all periods presented.
Other Financial Instruments
We measure the fair value of our Notes on a quarterly basis and we determined the fair value of the Notes at the end of fiscal 2020 and 2021 to be a Level 2 measurement due to its limited trading activity. Refer to Note 7 for the net carrying amounts and estimated fair value of the Notes at the end of fiscal 2020 and 2021.

73

Note 4. Business Combinations
Fiscal 2021 - Acquisition of Portworx Inc.
In October 2020, we acquired all outstanding stock of Portworx Inc. (Portworx), a privately-held container storage company that provides a Kubernetes data services platform for cloud native application. The transaction costs associated with the acquisition were not material and expensed as incurred. The total purchase consideration for the acquisition of Portworx was $352.9 million, which consisted of the following (in thousands):
Cash$344,049 
Fair value of options assumed8,802 
Total$352,851 
We assumed certain unvested and outstanding stock options for Portworx's common stock. These stock options were converted into stock options for shares of our common stock. The fair value of the exchanged options determined using the Black-Scholes option pricing model was $26.8 million, of which $8.8 million attributable to services performed prior to the acquisition date was allocated to purchase consideration. The remaining fair value of $18.0 million was allocated to future services and is being expensed over the remaining service periods as stock-based compensation expense. In addition, we assumed RSUs outstanding under the 2020 Portworx Equity Incentive Plan with a fair value of $31.8 million that is being recognized as stock-based compensation expense over a four year vesting period.
The following table summarizes the fair values of assets acquired and liabilities assumed as of the date of the acquisition (in thousands):
AmountEstimated Useful Life
Goodwill$321,152 
Identified intangible assets:
Developed technology21,273 5 years
Customer relationships6,459 7 years
Trade name3,623 3 years
Cash4,407 
Net liabilities assumed(4,063)
Total$352,851 
Goodwill generated from this acquisition is primarily attributable to the assembled workforce and expected post-acquisition synergies from combining Portworx container data services with our data services platform to expand our capabilities to support Kubernetes and containers. Goodwill is 0t deductible for tax purposes. The fair values of developed technology, customer relationships and trade name were derived by applying the excess earnings method, with-and-without method, and the relief-from-royalty method, respectively, all of which are under the income approach whose underlying inputs are considered Level 3. The fair values assigned to assets acquired and liabilities assumed are based on management's estimates and assumptions.
In connection with the Portworx acquisition, we recorded a net deferred tax asset of $14.7 million. However, this amount was offset by a valuation allowance, thus, resulting in a net 0 deferred tax asset during fiscal 2021. We continue to maintain a valuation allowance for our U.S. federal and state deferred tax assets.
In addition, cash payments to certain former shareholders of Portworx totaling $32.2 million are being made over three years ended January 31, 2017subject to continuous employment and 2018.are recognized as an operating expense.

The results of Portworx have been included in our consolidated statements of operations since the acquisition date and are not material. Pro forma results of operations have not been presented because the acquisition is not material to our results of operations.
74

Fiscal 2020 - Acquisition of Compuverde AB
In April 2019, we acquired Compuverde AB (Compuverde), a privately-held developer of file software solutions for enterprises and cloud providers based in Sweden. Acquisition-related costs were not material and expensed as incurred.
The purchase consideration was $47.9 million in cash (net of cash acquired) after repayment of $11.6 million of debt assumed. The purchase price was allocated as follows: $38.4 million in developed technology which is being amortized over seven years, $26.6 million of goodwill, $11.7 million in net liabilities assumed, and $5.4 million in deferred tax liability. The deferred tax liability was primarily a result of the difference in the book basis and tax basis related to the developed technology. Goodwill is primarily attributable to the assembled workforce and synergies from integrating Compuverde's technology with our data platform to expand our file capabilities and is not deductible for tax purposes.
In addition, cash payments to former shareholders of Compuverde totaling $15.9 million are being made over a two-year period and recognized as operating expense.
Restricted stock units in the amount of $3.0 million were issued to Compuverde employees in June 2019, subject to continuous employment and are being recognized as stock-based compensation over the related vesting period.
The results of Compuverde have been included in our consolidated statements of operations since the acquisition date and are not material. Pro forma results of operations have not been presented because the acquisition is not material to our results of operations.
Fiscal 2019 - Acquisition of StorReduce, Inc.
In August 2018, we completed the acquisition of StorReduce, Inc. (StorReduce), a privately-held, cloud-first software-defined storage solution for managing large-scale unstructured data. Acquisition-related costs were immaterial and were expensed as incurred.
The purchase consideration was $20.5 million in cash (net of cash acquired) after repayment of $6.1 million of debt assumed and payment of $1.1 million in transaction fees on behalf of StorReduce.
The purchase price was allocated as follows: $17.7 million in developed technology which is being amortized over seven years, $11.0 million of goodwill, $4.5 million in net liabilities assumed, and $3.7 million in deferred tax liabilities. The deferred tax liability was primarily a result of the difference in the book basis and tax basis related to the developed technology. Goodwill is primarily attributable to the assembled workforce and synergies from integrating StorReduce's technology with our storage portfolio and is not deductible for income tax purposes. We held back approximately $3.7 million in cash to satisfy potential indemnification claims which was paid in August 2019.
In addition, we granted 622,482 RSUs to former StorReduce employees with a total grant date fair value of $13.6 million, subject to continuous employment. These awards are being recognized as stock-based compensation over the related vesting period.
The results of StorReduce have been included in our consolidated statements of operations since the acquisition date, including revenue and net loss, and are not material. Pro forma results of operations have not been presented because the acquisition is not material to our results of operations.

Note 4.5. Balance Sheet Components
Inventory
Inventory consists of the following (in thousands):
At the End of Fiscal
20202021
Raw materials$2,974 $4,991 
Finished goods35,544 41,742 
Inventory$38,518 $46,733 
75
 January 31,
 2017 2018
Raw materials$3,003
 $1,181
Finished goods20,495
 33,316
Inventory$23,498
 $34,497




Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
January 31, At the End of Fiscal
2017 2018 20202021
Test equipment$105,955
 $142,311
Test equipment$205,555 $238,069 
Computer equipment and software54,521
 72,329
Computer equipment and software141,387 184,518 
Furniture and fixtures4,494
 5,363
Furniture and fixtures8,324 8,484 
Leasehold improvements10,332
 15,032
Leasehold improvements40,356 44,444 
Total property and equipment175,302
 235,035
Total property and equipment395,622 475,515 
Less: accumulated depreciation and amortization(93,607) (145,893)Less: accumulated depreciation and amortization(272,882)(312,474)
Property and equipment, net$81,695
 $89,142
Property and equipment, net$122,740 $163,041 
Depreciation and amortization expense related to property and equipment was $31.0$68.3 million, $48.8$80.4 million and $60.2$57.1 million for the years ended January 31, 2016, 2017fiscal 2019, 2020 and 2018,2021, respectively.
Intangible Assets, Net
Intangible assets, net consist of the following (in thousands):
 
At the End of Fiscal
January 31, 20202021
2017 2018 Gross Carrying ValueAccumulated AmortizationNet Carrying AmountGross Carrying ValueAccumulated AmortizationNet Carrying Amount
Technology patents$10,125
 $10,125
Technology patents$19,125 $(8,933)$10,192 $19,125 $(11,722)$7,403 
Accumulated amortization(3,565) (5,068)
Developed technologyDeveloped technology56,100 (8,035)48,065 77,373 (17,499)59,874 
Customer relationshipsCustomer relationships0 0 0 6,459 (308)6,151 
Trade nameTrade name0 0 0 3,623 (403)3,220 
Intangible assets, net$6,560
 $5,057
Intangible assets, net$75,225 $(16,968)$58,257 $106,580 $(29,932)$76,648 
Intangible assets amortization expense was $1.3$2.6 million, $1.4$9.3 million and $1.5$13.0 million for fiscal 2019, 2020 and 2021, respectively. At the years ended January 31, 2016, 2017 and 2018, respectively. Theend of fiscal 2021, the weighted-average remaining useful life of theamortization period was 2.7 years for technology patents, is 3.4 years. Due to the defensive nature4.9 years for developed technology, 6.7 years for customer relationships, and 2.7 years for trade name. We recorded amortization of thesetechnology patents the amortization is included in general and administrative expenses due to their defensive nature, developed technology in cost of product revenue, and customer relationships and trade name in sales and marketing expenses in the consolidated statements of operations.
AsAt the end of January 31, 2018,fiscal 2021, future expected future amortization expense for intangible assets is as follows (in thousands):
Fiscal Years EndingFuture Expected 
Amortization
Expense
2022$16,231 
202315,685 
202415,282 
202514,477 
202611,924 
Thereafter3,049 
Total$76,648 
76

Year Ending January 31,Estimated Future
Amortization
Expense
2019$1,504
20201,504
20211,504
2022545
Total$5,057
Goodwill
The change in the carrying amount of goodwill is as follows (in thousands):
Amount
Balance as of the end of fiscal 2020$37,584 
Goodwill acquired321,152 
Balance as of the end of fiscal 2021$358,736 

Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
 
 At the End of Fiscal
 20202021
Taxes payable$9,012 $4,097 
Accrued marketing7,679 15,638 
Accrued travel and entertainment expenses3,829 866 
Acquisition consideration6,149 9,600 
Other accrued liabilities20,554 31,553 
Total accrued expenses and other liabilities$47,223 $61,754 

Note 6. Deferred Revenue and Commissions
Deferred Commissions
Changes in total deferred commissions during the periods presented are as follows (in thousands):
Fiscal Year Ended
20202021
Beginning balance$114,973 $139,204 
Additions141,147 183,151 
Recognition of deferred commissions(116,916)(134,431)
Ending balance$139,204 $187,924 
During fiscal 2019, 2020 and 2021, we recognized sales commission expenses of $118.4 million, $142.5 million, and $150.2 million, respectively. Of the $187.9 million total deferred commissions balance at the end of fiscal 2021, we expect to recognize approximately 30% as sales commission expense over the next 12 months and the remainder thereafter.
There was 0 impairment related to capitalized commissions for fiscal 2019, 2020 or 2021.
Deferred Revenue
Changes in total deferred revenue during the periods presented are as follows (in thousands):
Fiscal Year Ended
20202021
Beginning balance$535,920 $697,288 
Additions569,816 703,800 
Recognition of deferred revenue(408,448)(557,391)
Ending balance$697,288 $843,697 
During fiscal 2020 and 2021, we recognized approximately $267.0 million and $353.1 million, respectively, in revenue pertaining to deferred revenue as of the beginning of each period.
77

 January 31,
 2017 2018
Taxes payable$1,675
 $4,052
Accrued marketing6,718
 5,928
Accrued travel and entertainment expenses2,235
 4,386
Other accrued liabilities11,069
 12,463
Total accrued expenses and other liabilities$21,697
 $26,829
Remaining Performance Obligations
Total contracted but not recognized revenue was $1,093.5 million at the end of fiscal 2021. Contracted but not recognized revenue consists of both deferred revenue and non-cancelable amounts that are expected to be invoiced and recognized as revenue in future periods. The value of orders that are contracted but have not been fulfilled and that can be canceled by customers, are excluded from remaining performance obligations. Of the $1,093.5 million contracted but not recognized revenue at the end of fiscal 2021, we expect to recognize approximately 43% over the next 12 months, and the remainder thereafter.


Note 7. Debt
Convertible Senior Notes
In April 2018, we issued $575.0 million in principal amount of 0.125% convertible senior notes due 2023, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act and received proceeds of $562.1 million, after deducting the underwriters’ discounts and commissions. The Notes are governed by an indenture (the Indenture) between us, as the issuer, and U.S. Bank National Association, as trustee. The Notes are our senior unsecured obligations. The Indenture does not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our subsidiaries. The Notes mature on April 15, 2023 unless repurchased or redeemed by us or converted in accordance with their terms prior to the maturity date. Interest is payable semi-annually in arrears on April 15 and October 15 of each year.
The Notes are convertible for up to 21,884,155 shares of our common stock at an initial conversion rate of approximately 38.0594 shares of common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $26.27 per share of common stock, subject to adjustment. Holders of the Notes may surrender their Notes for conversion at their option at any time prior to the close of business on the business day immediately preceding October 15, 2022, only under the following circumstances:
•during any fiscal quarter commencing after the fiscal quarter ended on July 31, 2018 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the Notes on each applicable trading day;
•during the 5 business day period after any 5 consecutive trading day period (the measurement period), in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the Notes on each such trading day;
•if we call any or all of the Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
•upon the occurrence of specified corporate events.
On or after October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time regardless of the foregoing circumstances. Upon conversion, holders will receive cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. We intend to settle the principal of the Notes in cash.
The conversion price will be subject to adjustment in some events. Following certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, we will increase the conversion rate for a holder who elects to convert its Notes in connection with such corporate event or during the related redemption period in certain circumstances. Additionally, upon the occurrence of a corporate event that constitutes a “fundamental change” per the Indenture, holders of the Notes may require us to repurchase for cash all or a portion of the Notes at a purchase price equal to 100% of the principal amount of the Notes plus accrued and unpaid contingent interest.
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We may not redeem the Notes prior to April 20, 2021. We may redeem for cash all or any portion of the Notes, at our option, on or after April 20, 2021 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending not more than 2 trading days immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.
Upon the issuance of the Notes, we recorded total debt issuance costs of $12.9 million, of which $9.8 million was allocated to the Notes and $3.1 million was allocated to additional paid-in capital.

The Notes consisted of the following (in thousands):

At the End of Fiscal
20202021
Liability:
Principal$575,000 $575,000 
Less: debt discount, net of amortization(91,378)(64,515)
Less: debt issuance costs, net of amortization(6,615)(4,671)
Net carrying amount of the Notes$477,007 $505,814 
Stockholders' equity recorded at issuance:
Allocated value of the conversion feature$136,333 
Less: debt issuance costs(3,068)
Additional paid-in capital$133,265 
The total estimated fair values of the Notes at the end of fiscal 2020 and 2021 were $582.6 million and $649.0 million. The fair values were determined based on the closing trading price per $100 of the Notes as of the last day of trading of fiscal 2020 and 2021. The fair value of the Notes is primarily affected by the trading price of our common stock and market interest rates. Based on the closing price of our common stock of $23.13 on the last day of fiscal 2021, the if-converted value of the Notes of $506.2 million was less than its principal amount. At the end of fiscal 2021, the remaining term of the Notes is 26 months.
The following table sets forth total interest expense recognized related to the Notes (in thousands):

Fiscal Year Ended
20202021
Amortization of debt discount$25,344 $26,863 
Amortization of debt issuance costs1,835 1,944 
Total amortization of debt discount and debt issuance costs27,179 28,807 
Contractual interest expense718 718 
Total interest expense related to the Notes$27,897 $29,525 
Effective interest rate of the liability component5.6 %5.6 %
In connection with the offering of the Notes, we paid $64.6 million to enter into capped call transactions with certain of the underwriters and their affiliates (the Capped Calls), whereby we have the option to purchase a total of 21,884,155 shares of our common stock upon any conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of the Notes, as the case may be, with such reduction or offset subject to a cap initially equal to $39.66 per share (which represents a premium of 100% over the last reported sales price of our common stock on April 4, 2018), subject to certain adjustments (the Cap Price). The cost of the Capped Calls was accounted for as a reduction to additional paid-in capital on the consolidated balance sheet. The Capped Calls are intended to reduce or offset potential dilution of our common stock upon any conversion of the Notes, subject to a cap based on the Cap Price.
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Impact on Earnings Per Share
The Notes will not impact our diluted earnings per share until the average market price of our common stock exceeds the conversion price of $26.27 per share, as we intend to settle the principal amount of the Notes in cash upon conversion. We are required under the treasury stock method to compute the potentially dilutive shares of common stock related to the Notes for periods we report net income. However, upon conversion, there will be no economic dilution from the Notes until the average market price of our common stock exceeds the Cap Price of $39.66 per share, as exercise of the Capped Calls offsets any dilution from the Notes from the conversion price up to the Cap Price. Capped Calls are excluded from the calculation of diluted earnings per share, as they would be anti-dilutive under the treasury stock method.
Revolving Credit Facility
In August 2020, we entered into a Credit Agreement with a consortium of financial institutions and lenders that provides for a five-year, senior secured revolving credit facility of $300.0 million (Credit Facility). Proceeds from the Credit Facility may be used for general corporate purposes and working capital. The Credit Facility expires, absent default or early termination by us, on the earlier of (i) August 24, 2025 or (ii) 91 days prior to the stated maturity of the Notes unless, on such date and each subsequent day until the Notes are paid in full, the sum of our cash, cash equivalents and marketable securities and the aggregate unused commitments then available to us exceed $625.0 million.
The annual interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.50% to 1.25% or LIBOR (based on one, three or six-month interest periods), subject to a floor of 0%, plus a margin ranging from 1.50% to 2.25%. Interest on revolving loans is payable quarterly in arrears with respect to loans based on the base rate and at the end of an interest period in the case of loans based on LIBOR (or at each three-month interval if the interest period is longer than three months). We are also required to pay a commitment fee on the unused portion of the commitments ranging from 0.25% to 0.40% per annum, payable quarterly in arrears that commenced on September 30, 2020.
In September 2020, we drew down $250.0 million under the Credit Facility which remained outstanding at the end of fiscal 2021. The outstanding loan bore weighted-average interest at the one-month LIBOR of approximately 1.65% resulting in interest expense of $1.4 million during fiscal 2021.
Loans under the Credit Facility are collateralized by substantially all of our assets and subject to certain restrictions and 2 financial ratios measured as of the last day of each fiscal quarter, commencing with the fiscal quarter ended January 31, 2021: a Consolidated Leverage Ratio not to exceed 4.5:1 and an Interest Coverage Ratio not to be less than 3:1. We were in compliance with all covenants under the Credit Facility at the end of fiscal 2021.

Note 5.8. Commitments and Contingencies
Operating Leases
We lease our office facilities underAt the end of fiscal 2021, we had various non-cancelable operating lease agreements expiring through April 2026. Certain of these lease agreements have escalating rent payments. We recognize rent expense under such agreements on a straight-line basis over the lease term, and the difference between the rent paid and the straight-line rent is recorded in accrued expenses and other liabilities and other long-term liabilities in the accompanying consolidated balance sheets.
In August 2017, we entered into a seven-year operating leasecommitments for approximately 45,831 square feet of office space in Mountain View, California with a total rent obligation and management fees of $32.2 million.
In March 2018, we amended our Mountain View, California lease signed in August 2017facilities. Refer to add a ten-year leaseNote 9—Leases for additional 31,571 square feet of office space for a total rent obligation and management fees of approximately $34.8 million, which are excluded from the table below. In connection with thisinformation regarding lease amendment, we issued a letter of credit of $1.5 million.commitments.

As of January 31, 2018, the aggregate future minimum payments under non-cancelable operating leases consist of the following (in thousands):
Year Ending January 31,Operating Leases
2019$19,321
202018,627
202120,083
202217,250
202313,991
Thereafter23,727
Total$112,999

Rent expense recognized under our operating leases were $11.0 million, $16.6 million and $19.4 million for the years ended January 31, 2016, 2017 and 2018, respectively.
Contractual Purchase Obligations
AsAt the end of January 31, 2017 and 2018,fiscal 2021, we had $4.1 million and $26.8$251.8 million of non-cancelable contractual purchase obligations primarily related to certaininventory purchase commitments, software service and other contracts.

sponsorship contracts, and hosting arrangements. We have various manufacturing contracts with vendors in the conduct of the normal course of business. In order to manage future demand for its products, we enter into agreements with manufacturers and suppliers to procure inventory based upon certain criteria and timing.
Letters of Credit
In connection withAt the lease executed in August 2017,end of fiscal 2020 and 2021, we issued a letter of credit of $2.6 million. As of January 31, 2017 and 2018, we had outstanding letters of credit in the aggregate amount of $7.7$11.5 million and $9.6$6.7 million, in connection with our facility leases. The letters of credit are collateralized by restricted cash and mature aton various dates through August 2026.2029.
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Legal Matters
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. 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.


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 maywe expect to have a material adverse effect on our business, financial position, results of operations or cash flows. Accordingly, we have not0t recorded any material loss contingency on our consolidated balance sheet as of January 31, 2018.the end of fiscal 2021.
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.

Note 9. Leases
We lease office facilities under non-cancelable operating lease agreements expiring through July 2032. Our lease agreements do not contain any material residual value guarantees or restrictive covenants. During fiscal 2021, we ceased use of certain leased facilities that resulted in the recognition of certain exit costs - see Note 10 for further information. In addition, we executed an early renewal that modified an existing data center lease with additional lease payments of $27.3 million.
The components of lease costs were as follows (in thousands):

Fiscal Year Ended
20202021
Fixed operating lease cost$33,800 $37,411 
Variable lease cost (1)
8,097 9,168 
Short-term lease cost (12 months or less)5,537 5,734 
Total lease cost$47,434 $52,313 
(1)Variable lease cost predominantly included common area maintenance charges.
Rent expense recognized under our operating leases prior to adoption of ASC 842 was $25.6 million during fiscal 2019.
At the end of fiscal 2020, the weighted-average remaining lease term was 5.6 years, and the weighted-average discount rate was 6.5%. At the end of fiscal 2021, the weighted-average remaining lease term is 5.2 years, and the weighted-average discount rate is 5.8%. Future lease payments under our non-cancelable operating leases at the end of fiscal 2021 are as follows (in thousands):
Fiscal Years EndingOperating Leases
2022$40,110 
202336,971 
202431,340 
202527,059 
202619,231 
Thereafter24,371 
Total future lease payments$179,082 
Less: imputed interest(26,490)
Present value of lease liabilities$152,592 

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Note 10. Restructuring and Other
During fiscal 2021, we ceased use of certain leased facilities and recorded an impairment charge of $7.5 million for operating lease right-of-use assets and leasehold improvements for these leases. In addition, we recognized a liability of $2.4 million for the remaining lease costs that will continue to be incurred without benefit to us.
During fiscal 2021, we effected workforce realignment plans to streamline our operations and recognized $12.2 million of restructuring costs related to one-time involuntary termination benefit costs. The restructuring charges are included in restructuring and other expenses in our consolidated statement of operations. The liability for unpaid amounts at the end of fiscal 2021 was $4.3 million.
During fiscal 2021, we incurred incremental costs of $9.8 million directly related to the COVID-19 pandemic. These costs primarily included the write-off of marketing commitments no longer deemed to have value for the remainder of fiscal 2021, estimated non-recoverable costs for internal events that could not be held, and hazard related premiums to support manufacturing operations. Of these costs, $8.9 million is included in restructuring and other expenses and $0.9 million is included in cost of revenue in our consolidated statements of operations for fiscal 2021.
Note 6.11. Stockholders’ Equity
Preferred Stock
Upon the closing of our IPO in October 2015, we filed an Amended and Restated Certificate of Incorporation, whichWe have 20,000,000 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. AsAt the end of January 31, 2018,fiscal 2021, there were no0 shares of preferred stock issued or outstanding.
Class A and Class B Common Stock
We have two2 classes of authorized common stock, Class A common stock, which we refer to as our "common stock", and Class B common stock. As of January 31, 2018, we hadWe have 2,000,000,000 authorized shares of Class A common stock authorized with a par value of $0.0001 per share and 250,000,000 authorized shares of Class B common stock, authorized with each class having a par value of $0.0001 per share. AsAt the end of January 31, 2018, 129,502,242fiscal 2021, 278,362,598 shares of Class A common stock were issued and outstanding and 91,476,735 shares of Class B common stock were issued and outstanding.
The rights of the holders of Class A and Class B common stock are identical, except with respect to voting. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share. Shares of Class B common stock may be converted to Class A common stock at any time at the option of the stockholder. Shares of Class B common stock automatically convert to Class A common stock upon the following: (i) sale or transfer of such share of Class B common stock; (ii) the death of the Class B common stockholder (or nine months after the date of death if the stockholder is one of our founders); and (iii) on the final conversion date, defined as the earlier of (a) the first trading day on or after the date on which the outstanding shares of Class B common stock represent less than 10% of the then outstanding Class A and Class B common stock; (b) the tenth anniversary of the IPO; or (c) the date specified by vote of the holders of a majority of the outstanding shares of Class B common stock, voting as a single class.
Class A and Class B common stock are referred to as common stock throughout the notes to the consolidated financial statements, unless otherwise noted.
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 year ended January 31, 2016, the amount of which was equal to the fair value of the shares of Class B common stock issued. 
Common Stock Reserved for Issuance
AsAt the end of January 31, 2018,fiscal 2021, we had reserved shares of common stock for future issuance as follows:


January 31, 2018
Shares underlying outstanding stock options46,359,94918,558,974 
Shares underlying outstanding restricted stock units17,682,64630,830,082 
Shares reserved for future equity awards19,684,91614,040,926 
Shares reserved for future employee stock purchase plan awards2,489,7673,938,930 
Total86,217,27867,368,912 
Share Repurchase Program
In August 2019, our board of directors approved a stock repurchase program to repurchase up to $150.0 million of our common stock, which was substantially completed in the fourth quarter of fiscal 2021. In February 2021, our board of directors authorized the repurchase of up to an additional $200.0 million of our common stock. The authorization allows us to repurchase shares of our common stock opportunistically and will be funded from available working capital. Repurchases may be made at management’s discretion from time to time on the open market through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing. The share repurchase program does not obligate us to acquire any of our common stock, has no end date, and may be suspended or discontinued by us at any time without prior notice.
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We record the difference between cash paid for stock repurchases and underlying par value as a reduction to additional paid-in capital, to the extent the repurchases does not cause this balance to be reduced below zero, at which point the difference would be recorded as a reduction to accumulated deficit. During fiscal 2020, we repurchased and retired 867,657 shares of common stock at an average purchase price of $17.29 per share for an aggregate repurchase price of $15.0 million. During fiscal 2021, we repurchased and retired 9,526,556 shares of common stock at an average purchase price of $14.17 per share for an aggregate repurchase price of $135.0 million.
Repurchase of Common Stock in connection with the Notes
Concurrent with the issuance of the Notes (see Note 7), we repurchased and retired 1,008,573 shares, or $20.0 million, of our common stock at $19.83 per share, which was equal to the closing price per share of our common stock on April 4, 2018, the date of the pricing of the offering of the Notes.
Note 7.12. Equity Incentive Plans
Equity Incentive Plans
We maintain two2 equity incentive plans: the 2009 Equity Incentive Plan (our(the 2009 Plan) and the 2015 Equity Incentive Plan (our(the 2015 Plan). In AugustThe 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. Our 2015 Plan and provides for the issuancegrants of incentive stock options to our employees and non-statutory stock options, stock appreciation rights, restricted stock, awards, restricted stock unit awards,RSUs, performance stock awards, performance cash awards, and other forms of stock awards to our employees, directors and consultants. No new awards are 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. Our equity awards generally vest over a two to four year period and expire no later than ten years from the date of grant.
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 increases automatically on the first day of February of each of 2016fiscal year through 2025, in an amount equal to 5% of the total number of shares of our capital stock outstanding as of the immediately preceding January 31.
We net-share settle equity awards held by certain employees by withholding shares upon vesting to satisfy tax withholding obligations. The exercise priceshares withheld to satisfy employee tax withholding obligations are returned to our 2015 Plan and will be available for future issuance. Payments for employees’ tax obligations to the tax authorities are recognized as a reduction to additional paid-in capital and reflected as a financing activity in our consolidated statements of cash flows.
In conjunction with the Portworx acquisition, we assumed (i) certain options to purchase common stock options will generally not be less than 100% ofoutstanding under Portworx's 2014 Stock Incentive Plan and (ii) RSUs outstanding under the fair market value2020 Portworx Equity Incentive Plan (collectively, the "Assumed Equity Awards"). The Assumed Equity Awards were converted into corresponding awards for shares of our common stock and retained substantially all of the terms and conditions under which they were granted. Approximately 3.9 million shares are reserved for issuance in connection with the Assumed Equity Awards. Refer to Note 4 for further information 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 yearsassumed resulting from the date of grant.Portworx acquisition.
2015 Amended and Restated Employee Stock Purchase Plan
In August 2015, our board of directors adopted and our stockholders approved, theOur 2015 Employee Stock Purchase Plan was amended and restated in fiscal 2020 (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.ESPP and an additional 5,000,000 shares of common stock were added in connection with the amendment and restatement. 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.

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Our board of directors (or a committee thereof) has the authority to establish the length and terms of the offering periods and purchase periods and the purchase price of the shares of common stock which may be purchased under the plan. The 2015 ESPP allowscurrent offering terms allow eligible employees to purchase shares of our Class A common stock at a discount through payroll deductions of up to 30% of their eligible compensation, subject to a cap of 3,000 shares on any purchase date, a dollar cap of $7,500 per purchase period (instituted in February 2019), or $25,000 in any calendar year (as determined under applicable tax rules). ExceptThe current terms also allow for the initiala 24-month offering period the 2015 ESPP provides for 24 month offering periods beginning March 16th and September 16th of each year, andwith each offering period will consistconsisting of four six-month4 6 month purchase periods, subject to a reset provision. IfFurther, currently, on each purchase date, eligible employees may purchase our common stock at a price per share equal to 85% of the lesser of the fair market value of our common stock (1) on the first trading day of the applicable offering period or (2) the purchase date.
Under the reset provision currently authorized, 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.

Since inception, we had two ESPP resets. The first ESPP reset occurred when our closing stock price on March 16, 2016 was below the closing stock price on October 7, 2015, which triggered a new 24-month offering period through March 15, 2018,, resulting in a modification charge to be recognized over the new offering period. During fiscal 2020 and 2021, multiple ESPP resets resulted in total modification charges of approximately $10.6$13.6 million and $23.8 million to be recognized over the new offering period. The secondperiods. There was 0 ESPP reset occurred when our closing stock price on March 16, 2017 was below the closing stock prices on March 16, 2016 and September 16, 2016, which triggered a new 24-month offering period through March 15, 2019, resulting in another modification charge of approximately $9.0 million. This amount along with the remaining unamortized expense from the first reset, is being recognized over the new offering period ending March 15,during fiscal 2019.


During the years ended January 31, 2016, 2017fiscal 2019, 2020 and 2018,2021, we recognized $4.4$35.4 million, $18.3$24.5 million and $18.3$25.8 million, respectively, of stock-based compensation expense related to our 2015 ESPP. AsAt the end of January 31, 2018, there was $26.4 million offiscal 2021, total unrecognized stock-based compensation expensecost related to our 2015 ESPP was $32.8 million, which is expected to be recognized over a weighted-average period of approximately 1.11.2 years.
Early Exercise of Stock Options
Certain employees and directors have exercised options granted under the 2009 Plan prior to vesting. The unvested shares are subject to a repurchase right held by us at the original purchase price. The proceeds initially are recorded as liability related to early exercised stock options and reclassified to additional paid-in capital as the repurchase right lapses. No unvested stock options were exercised during the years ended January 31, 2016, 2017 and 2018. In the year ended January 31, 2016, we repurchased 15,000 shares of unvested common stock related to early exercised stock options at the original purchase price due to the termination of an employee. No shares were repurchased during the years ended January 31, 2017 and 2018. As of January 31, 2017 and 2018, 494,117 and 85,262 shares held by employees and directors were subject to repurchase at an aggregate price of $1.4 million and $0.3 million.
Stock Options
A summary of the 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 (Years)		 Aggregate
Intrinsic
Value
       (in thousands) 
Balance as of January 31, 201756,840,189
 $7.15
 7.0 $315,502
Options granted1,000,000
 14.92
    
Options exercised(8,814,019) 2.79
    
Options cancelled/forfeited(2,666,221) 13.91
    
Balance as of January 31, 201846,359,949
 $7.75
 6.3 $574,224
Vested and exercisable as of January 31, 201828,990,955
 $5.30
 5.7 $430,325
 Options Outstanding
 Number of
Shares		Weighted-
Average
Exercise Price		Weighted-
Average
Remaining
Contractual
Life (Years)		Aggregate
Intrinsic
Value
(in thousands)
Balance at the end of fiscal 202026,822,243 $8.97 3.9$237,803 
Options assumed in an acquisition1,891,349 1.75   
Options exercised(9,734,153)6.11   
Options forfeited/canceled(420,465)14.77   
Balance at the end of fiscal 202118,558,974 $9.60 4.3$251,503 
Vested and exercisable at the end of fiscal 202116,016,719 $9.92 3.8$211,566 
The aggregate intrinsic value of options vested and exercisable asat the end of January 31, 2018fiscal 2021 is calculated based on the difference between the exercise price and the closing price of $20.14$23.13 of our Class A common stock on January 31, 2018.the last day of fiscal 2021. The aggregate intrinsic value of options exercised for the years ended January 31, 2016, 2017during fiscal 2019, 2020 and 20182021 was $29.5$165.0 million, $114.2$106.6 million and $104.9 million, respectively.$118.8 million.
The weighted-average grant date fair value of options grantedassumed was $8.38, $5.57 and $5.57$14.16 per share for the years ended January 31, 2016, 2017 and 2018, respectively.fiscal 2021. The total grant date fair value of options vested for the years ended January 31, 2016, 2017during fiscal 2019, 2020 and 20182021 was $35.4$45.6 million, $61.8$34.2 million and $42.5$20.1 million.
During fiscal 2019, 2020 and 2021, we recognized $32.0 million, respectively.
As$15.8 million and $8.6 million, of January 31, 2018, total unamortized stock-based compensation expense related to ourstock options. At the end of fiscal 2021, total unrecognized employee stockstock-based compensation cost related to outstanding options was $74.4$17.5 million, which is expected to be recognized over a weighted-average period of approximately 2.62.2 years.
During the year ended January 31, 2016, we granted options to purchase 238,000 shares of common stock, net of cancellations, that vest upon satisfaction of performance and service conditions. For those options that management determined that the performance condition was satisfied, stock-based compensation expense of $2.5 million, $3.3 million and $0.6 million was recognized during the years ended January 31, 2016, 2017 and 2018, respectively. As of January 31, 2017 and 2018, there were no outstanding stock options subject to performance vesting conditions.
84
In November 2016, we modified employee stock option awards to purchase 800,000 shares of our common stock. The modification included an immediate acceleration of performance-based options to purchase 360,000 shares



of common stock and an acceleration of time-based options to purchase 440,000 shares of common stock contingent on continued employment through January 31, 2017. This modification resulted in stock-based compensation expense of $5.9 million that was recognized during the year ended January 31, 2017.
Determination of Fair Value
The fair value of stock options granted to employees and 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 the fair value of the underlying common stock, expected term, the expected volatility of the common stock, a risk-free interest rate and expected dividend yield.
We estimate The assumptions used for the fair value of employee stock options and ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions:periods presented are as follows:
 
Year Ended January 31, Fiscal Year Ended
2016 2017 2018 201920202021
Employee Stock Options     Employee Stock Options   
Expected term (in years)6.0 - 7.4
 6.1
 6.1
Expected term (in years)n/an/a5.65
Expected volatility48% - 52%
 44% 47%Expected volatilityn/an/a52.07%
Risk-free interest rate1.5% - 1.9%
 1.3% - 1.5%
 1.9%Risk-free interest raten/an/a0.3%
Dividend rate—
 —
 —
Dividend raten/an/a0
Fair value of common stock$13.94 - $19.68
 $10.37 - $14.52
 $12.84Fair value of common stockn/an/a$15.79
Employee Stock Purchase Plan 
  
  
Employee Stock Purchase Plan   
Expected term (in years)0.4 - 1.9
 0.5 - 2.0
 0.5 - 2.0
Expected term (in years)0.5 - 2.00.5 - 2.00.5 - 2.0
Expected volatility49% 41% 35% - 39%
Expected volatility44% - 47%42% - 47%52% - 113%
Risk-free interest rate0.1% - 0.7%
 0.5% - 0.9%
 0.9% - 1.4%
Risk-free interest rate2.0% - 2.8%1.7% - 2.5%0.1% - 0.4%
Dividend rate—
 —
 —
Dividend rate000
Fair value of common stockFair value of common stock$20.62 - $27.66$17.76 - $20.87$9.07 - $15.26
 
The assumptions used in the Black-Scholes option pricing model were determined as follows.
Fair Value of Common Stock—Prior to our IPO in October 2015, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date, including (i) contemporaneous third-party valuations of common stock; (ii) the prices for our convertible preferred stock sold to outside investors; (iii) the rights and preferences of convertible preferred stock relative to common stock; (iv) the lack of marketability of our common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an IPO or sale of Pure Storage, given prevailing market conditions. Subsequent to our IPO, weWe use the market closing price of our Class A common stock as reported on the New York Stock Exchange to determine the fair value of our common stock at each grant date.
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 vesting terms, exercise terms and contractual lives of the options and ESPP purchase rights.
Expected Volatility—Since we have limited trading historyThe expected volatility for ESPP purchase rights is based on the historical volatility 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 overfor a period equivalent to the expected term of the stock option grants and 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 stock option grants and 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.0.


Restricted Stock UnitsRSUs
A summary of the restricted stock unitRSU activity under our 2015 Planequity incentive plans and related information is as follows:
Number of RSUs OutstandingWeighted-Average Grant Date Fair ValueAggregate Intrinsic Value
(in thousands)
Unvested balance at the end of fiscal 202025,434,597 $18.72 $452,736 
Granted18,414,274 12.61 
Assumed in an acquisition2,016,061 15.79 
Vested(11,240,616)16.90 
Forfeited(3,794,234)16.82 
Unvested balance at the end of fiscal 202130,830,082 $15.77 $712,657 
85

 Number of Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value Aggregate Intrinsic Value
     (in thousands) 
Unvested balance as of January 31, 20178,783,024 $13.06
 $99,863
Granted15,779,364 12.16
  
Vested(5,277,679) 12.30
  
Forfeited(1,602,063) 11.88
  
Unvested balance of January 31, 201817,682,646 $12.60
 $356,117


In March 2017,During fiscal 2021, we granted 750,0001,682,266 shares of performance stock units (netRSUs, at a target percentage of 77,000 canceled units)100%, with both performance and service vesting conditions payable in common sharesstock, from 0% to 150%125% of the target number granted, contingent upon the degree to which the performance condition is met. At January 31, 2018,A total of 1,406,681 shares were earned at the end of fiscal 2021 based on the performance condition achieved and these shares are subject to service conditions through the vesting periods. The remaining shares will be canceled in fiscal 2022.
The aggregate fair value, as of the respective vesting dates, of RSUs that vested during fiscal 2019, 2020 and 2021 was satisfied. Stock-based compensation expense for these performance stock units was $4.2$184.8 million, for the year ended January 31, 2018$164.1 million and total unamortized$183.4 million.
During fiscal 2019, 2020 and 2021, we recognized $119.9 million, $161.8 million and $199.1 million in stock-based compensation expense related to RSUs. At the end of fiscal 2021, total unrecognized employee compensation cost related to unvested RSUs was $3.3$428.5 million, as of January 31, 2018, which is expected to be recognized over 2.2a weighted-average period of 2.7 years.

Restricted Stock
In August 2017, we granted 464,744 performance stock units with both performance and service vesting conditions payable in common shares from 0% to 150%A summary of the target number granted, contingent upon the degree to which the performance condition is met. Because the performance condition for these stock units was not established as of January 31, 2018, there was no grant date from an accounting perspective and no stock-based compensation expense was recognized. Also, no grant date fair value was considered in the calculation of weighted-average grant date fair value in the table above. In March 2018, the performance condition for these performance stock units was established and the grant date fair value of these stock units was $21.13 per share. Stock-based compensation expense will be recognized under the accelerated attribution method over the vesting period through December 2020.

In March 2018, we converted 1,375,210 performance stock units and restricted stock units to 1,375,210activity under our 2015 Plan and related information is as follows:
 Number of Restricted Stock OutstandingWeighted-
Average
Grant Date
Fair Value		Aggregate
Intrinsic
Value
(in thousands)
Unvested balance at the end of fiscal 20202,127,206 $19.58 $37,864 
Vested(1,252,405)19.61 
Forfeited/canceled(316,965)20.38 
Unvested balance at the end of fiscal 2021557,836 $19.06 $12,903 
All unvested shares of restricted stock. The conversion did not changestock are subject to cancellation to the fair value orextent vesting conditions and therefore no modification is required.

are not met. The aggregate fair value of restricted stock units that vested during the year ended January 31, 2018fiscal 2019, 2020 and 2021 was $75.5$3.6 million, $24.2 million and $18.3 million.

As of January 31, 2018, total unamortizedDuring fiscal 2019, 2020 and 2021, we recognized $23.3 million, $24.6 million and $9.3 million in stock-based compensation expense related to outstandingrestricted stock. At the end of fiscal 2021, total unrecognized employee compensation cost related to unvested restricted stock units was $187.2$2.6 million, which is expected to be recognized over a weighted-average period of approximately 2.60.9 years.
Stock-Based Compensation Expense
The following table summarizes the components of stock-based compensation expense recognized in the consolidated statements of operations (in thousands):
 Fiscal Year Ended
 201920202021
Cost of revenue—product$2,951 $3,732 $4,001 
Cost of revenue—subscription services12,378 14,403 14,979 
Research and development92,484 107,658 117,220 
Sales and marketing66,350 67,560 65,248 
General and administrative36,482 33,352 40,896 
Total stock-based compensation expense$210,645 $226,705 $242,344 
The tax benefit related to stock-based compensation expense for all periods presented was not material.
86
 Year Ended January 31,
 2016 2017 2018
Cost of revenue—product$276
 $601
 $1,630
Cost of revenue—support2,388
 5,639
 9,050
Research and development31,135
 63,495
 71,229
Sales and marketing16,966
 34,317
 47,687
General and administrative7,460
 12,616
 21,077
Total stock-based compensation expense$58,225
 $116,668
 $150,673




Note 8.13. Net Loss per Share Attributable to Common Stockholders
Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. The dilutedDiluted net loss per share attributable to common stockholders is computed by giving effect to all potentialpotentially dilutive common stock equivalents, including our outstanding for the period. For purposes of this calculation, convertible preferred stock, stock options, common stock related to unvested RSUs, unvested restricted stock, units, repurchasable shares from early exercised stock optionsour Notes to the extent dilutive, and shares subject to ESPP withholding are considered to be common stock issuable pursuant to the ESPP. These potentially dilutive 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,In December 2018, all outstanding shares of the holders of our Class A and Class B common stock are identical, except with respectconverted to voting. Asshares of Class A common stock pursuant to the liquidationterms of our amended and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resultingrestated certificate of incorporation. The conversion did not impact our basic or diluted net loss per share attributedattributable 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.fiscal 2019.
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):
 
Fiscal Year Ended
Year Ended January 31, 201920202021
2016 2017 2018
Net loss$(213,752) $(245,066) $(177,602)Net loss$(178,362)$(200,987)$(282,076)
Weighted-average shares used in computing net loss
per share attributable to common stockholders, basic and diluted		82,460
 194,714
 211,609
Weighted-average shares used in computing net loss
per share attributable to common stockholders, basic and diluted		232,042 252,820 267,824 
Net loss per share attributable to common stockholders,
basic and diluted
$(2.59) $(1.26) $(0.84)Net loss per share attributable to common stockholders,
basic and diluted		$(0.77)$(0.79)$(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):
 
 Fiscal Year Ended
 201920202021
Stock options to purchase common stock39,928 31,315 23,180 
Unvested restricted stock units19,488 24,374 31,980 
Unvested restricted stock2,881 2,614 1,145 
Shares related to convertible senior notes17,867 21,884 21,884 
Shares issuable pursuant to the ESPP2,411 1,031 2,148 
Early exercised stock options subject to repurchase7 0 0 
Total82,582 81,218 80,337 

87
 Year Ended January 31,
 2016 2017 2018
Stock options to purchase common stock61,795
 63,984
 52,424
Restricted stock units—
 5,216
 15,496
Employee stock purchase plan170
 1,310
 1,544
Early exercised stock options3,618
 2,106
 246
Total65,583
 72,616
 69,710


Note 9.14. Other Income (Expense), Net
Other income (expense), net consists of the following (in thousands):
Fiscal Year Ended
201920202021
Interest income (1)
$18,013 $27,241 $17,442 
Interest expense (2)
(21,615)(27,897)(31,403)
Foreign currency transactions (losses) gains(5,230)(3,396)2,507 
Other income816 669 2,327 
Total other income (expense), net$(8,016)$(3,383)$(9,127)

(1) Interest income includes interest income related to our cash, cash equivalents and marketable securities and non-cash interest income (expense) related to accretion (amortization) of the discount (premium) on marketable securities.
(2) Interest expense includes non-cash interest expense related to amortization of the debt discount and debt issuance costs and the contractual interest expense related to our debt.

Note 15. Income Taxes
The geographical breakdown of loss before provision for income taxes is as follows (in thousands):


 Fiscal Year Ended
 201920202021
Domestic$(145,428)$(212,672)$(312,119)
International(31,845)18,006 41,959 
Total$(177,273)$(194,666)$(270,160)
 Year Ended January 31,
 2016 2017 2018
Domestic$(195,019) $(200,355) $(135,115)
International(17,164) (42,824) (38,598)
Total$(212,183) $(243,179) $(173,713)



The components of the provision for income taxes are as follows (in thousands):
Year Ended January 31, Fiscal Year Ended
2016 2017 2018 201920202021
Current: 
  
  
Current:   
State$210
 $389
 $525
State$571 $538 $442 
Foreign2,198
 1,806
 3,580
Foreign4,214 7,774 8,006 
Total$2,408
 $2,195
 $4,105
Total$4,785 $8,312 $8,448 
Deferred: 
  
  
Deferred:   
FederalFederal$(2,776)$(1,559)$(218)
StateState(920)(198)0 
Foreign(839) (308) (216)Foreign0 (234)3,686 
TotalTotal$(3,696)$(1,991)$3,468 
Provision for income taxes$1,569
 $1,887
 $3,889
Provision for income taxes$1,089 $6,321 $11,916 
 
88

The reconciliation of income taxes at the federal statutory income tax rate and effectiveto the provision for income tax ratetaxes is as follows (in thousands):
 Fiscal Year Ended
 201920202021
Tax at federal statutory rate$(37,227)$(40,880)$(56,734)
State tax, net of federal benefit(469)210 349 
Stock-based compensation expense(28,437)(6,683)(604)
Research and development tax credits(10,371)(11,033)(14,138)
U.S. taxes on foreign income0 0 14,021 
Foreign rate differential12,299 2,935 2,282 
Change in valuation allowance85,533 61,050 63,146 
Foreign on-shoring intellectual property(20,371)0 0 
Other132 722 3,594 
Provision for income taxes$1,089 $6,321 $11,916 
 Year Ended January 31,
 2016 2017 2018
Tax at federal statutory rate$(72,142) $(82,682) $(57,144)
State tax, net of federal benefit152
 276
 351
Stock-based compensation expense10,866
 (5,242) (9,953)
Research and development tax credits(3,832) (1,570) (7,629)
Foreign rate differential7,106
 15,878
 18,667
Change in valuation allowance58,979
 73,863
 (48,703)
Remeasurement of deferred tax assets and liabilities—
 —
 107,029
Other440
 1,364
 1,271
Provision for income taxes$1,569
 $1,887
 $3,889


Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of our deferred tax assets and liabilities were as follows (in thousands):


 At the End of Fiscal
 20202021
Deferred tax assets:  
Net operating loss carryforwards$232,155 $308,250 
Tax credit carryover76,209 104,247 
Accruals and reserves11,489 22,263 
Deferred revenue60,473 69,886 
Stock-based compensation expense31,906 28,310 
Depreciation and amortization18,893 120 
Charitable contribution carryforwards2,835 229 
Interest expense limitation (163(j))0 110 
ASC 842 lease liabilities25,197 33,302 
Total deferred tax assets$459,157 $566,717 
Valuation allowance(385,791)(484,437)
Total deferred tax assets, net of valuation allowance$73,366 $82,280 
Deferred tax liabilities:  
Deferred commissions$(30,628)$(41,526)
Convertible debt(11,226)(8,147)
ASC 842 right-of-use assets(23,502)(29,183)
Acquired intangibles and goodwill(10,421)(8,727)
Other(1,729)(2,230)
Total deferred tax liabilities$(77,506)$(89,813)
Net deferred tax liabilities$(4,140)$(7,533)

89

 January 31,
 2017 2018
Deferred tax assets: 
  
Net operating loss carryforwards$173,942
 $127,621
Tax credit carryover15,319
 33,105
Accruals and reserves3,112
 1,809
Deferred revenue53,424
 46,570
Stock-based compensation expense26,401
 24,133
Depreciation and amortization7,302
 15,367
Charitable contribution carryforwards4,345
 2,892
Other—
 465
Total deferred tax assets283,845
 251,962
Valuation allowance(271,779) (240,519)
Total deferred tax assets, net of valuation allowance12,066
 11,443
Deferred tax liabilities: 
  
Deferred commissions(11,222) (10,383)
Total deferred tax liabilities(11,222) (10,383)
Net deferred tax assets$844
 $1,060
The Tax Act was signed into law on December 22, 2017. The new legislation decreasesIn June 2019, a three-judge panel from the U.S. corporate federal income tax rate from 35%Court of Appeals for the Ninth Circuit overturned the U.S. Tax Court's decision in Altera Corp. v. Commissioner and upheld the portion of the Treasury regulations under Section 482 of the Internal Revenue Code that requires related parties in a cost-sharing arrangement to 21% effective January 1, 2018. Asshare expenses related to share-based compensation. On July 22, 2019, the taxpayer filed a result,petition for a rehearing before the full Ninth Circuit and the request was denied on November 12, 2019. On February 10, 2020, the taxpayer filed a petition to appeal the decision to the Supreme Court and on June 22, 2020 the Supreme Court denied the petition. Due to the Ninth Circuit's decision, we adjusted our U.S. federalnet operating loss carryforward by $29.7 million in fiscal 2021 to reflect the reduction in losses for fiscal years 2017, 2018 and state deferred


tax assets and valuation allowance each decreased by approximately $98 million, and accordingly there2019. We terminated our intercompany cost sharing arrangement at the end of fiscal 2019. There is no impact on our effective tax rate for fiscal 2021 due to our provision for income taxes. Since we have a January 31U.S. full valuation allowance against our deferred tax assets.
At the end of fiscal year end, we have a federal blended tax rate of 32.9% for the year ended January 31, 2018 and 21% thereafter on any current U.S. federal taxes payable.

The Tax Act also includes a number of other provisions including the elimination of loss carrybacks and limitations on the use of future losses, limitations on the deductibility of executive compensation, limitation or modification on the deductibility of certain business expenses, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and the introduction of a base erosion and anti-abuse tax. We will continue to assess the impact of the Tax Act during the one-year measurement period from the Tax Act enactment date as allowed by Staff Accounting Bulletin No. 118 (SAB 118) issued in connection with the Tax Act. We expect to complete the accounting for the tax effects of the Tax Act in calendar year 2018.

As of January 31, 2018,2021, the undistributed earnings of $20.8$82.2 million from non-U.S. operations held by our foreign subsidiaries are designated as permanently reinvested outside the U.S. Accordingly, no additional U.S. income taxes or additional foreign withholding taxes have been provided thereon. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.
AsAt the end of January 31, 2018,fiscal 2021, we had net operating loss carryforwards for federal income tax purposes of approximately $508.9$1,278.0 million and state income tax purposes of approximately $331.9$645.8 million. These net operating loss carryforwards will expire, if not utilized, beginning in 2028 for federal and state income tax purposes.
We had federal and state research and development tax credit carryforwards of approximately $26.6$75.6 million and $22.2$67.6 million asat the end of January 31, 2018.fiscal 2021. The federal research and development tax credit carryforwards will expire commencing in 2028, while the state research and development tax credit carryforwards have no expiration date.
Realization of deferred tax assets is dependent on future taxable income, the existence and timing of which is uncertain. Based on our history of losses, management has determined that it is more likely than not that the U.S. deferred tax assets will not be realized, and accordingly has placed a full valuation allowance on the net U.S. deferred tax assets. The valuation allowance increased by $68.0 million, $90.9$78.3 million and decreased by $31.3$98.6 million, respectively, during the years ended January 31, 2016, 2017fiscal 2020 and 2018.2021.
Utilization of the net operating loss carryforwards and credits may be subject to substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. In February 2018,January 2021, we completed an analysis through January 2018the end of fiscal 2021 to evaluate whether there are any limitations of our net operating loss carryforwards and concluded no limitations currently exist.that there was not a limitation that would result in the permanent expiration of carryforwards before they are utilized.
In March 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law. The Act includes provisions relating to deferment of the employer portion of certain payroll taxes and permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. The Company has determined that the NOL provisions will not impact the Company since the Company has been generating losses. The CARES Act allowed for the deferral of payment on the Company’s share of the 6.2% Social Security tax on certain wages paid in fiscal year 2021. Deferred amounts totaling $9.0 million will be due on December 31, 2021, and the remainder of $9.0 million due on December 31, 2022.
Uncertain Tax Positions
The activity related to the unrecognized tax benefits is as follows (in thousands):
 Fiscal Year Ended
 201920202021
Gross unrecognized tax benefits—beginning balance$12,401 $18,891 $28,570 
Decreases related to tax positions taken during prior years(845)(34)(345)
Increases related to tax positions taken during prior years0 408 1,881 
Increases related to tax positions taken during current year7,335 9,305 9,465 
Gross unrecognized tax benefits—ending balance$18,891 $28,570 $39,571 
90

 Year Ended January 31,
 2016 2017 2018
Gross unrecognized tax benefits—beginning balance$13,874
 $15,470
 $6,375
Decreases related to tax positions taken during
   prior years		(3,969) (11,286) (24)
Increases related to tax positions taken during
   prior years		35
 —
 619
Increases related to tax positions taken during
   current year		5,530
 2,191
 5,431
Gross unrecognized tax benefits—ending balance$15,470
 $6,375
 $12,401
As At the end of January 31, 2018,fiscal 2021, our gross unrecognized tax benefit was approximately $12.4$39.6 million, none$2.3 million of which if recognized, would have an impact on the effective tax rate because it would be offset byrate.
At the reversalend of deferred tax assets which are subject to a full valuation allowance.
As of January 31, 2018,fiscal 2021, we had no0 current or cumulative interest and penalties related to uncertain tax positions.


It is difficult to predict the final timing and resolution of any particular uncertain tax position. Based on our assessment, including experience and complex judgments about future events, we do not expect that changes in the liability for unrecognized tax benefits during the next twelve months will have a significant impact on our consolidated financial position or results of operations.
We file income tax returns in the U.S. federal jurisdiction as well as many U.S. states and foreign jurisdictions. Our fiscal year 2014 federal income tax return examination by the Internal Revenue Service was concluded with no adjustments. The tax returns for fiscal years 20132009 and forward remain open to examination by the major jurisdictions in which we are subject to tax. The tax returns for fiscal years outside the normal statutes of limitation remain open to audit by tax authorities due to tax attributes generated in those early years, which have been carried forward and may be audited in subsequent years when utilized.
Note 10.16. 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 groupOfficer. Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. We have one1 business activity and there are no segment managers who are held accountable for operations or operating results. Accordingly, we have a single reportable segment.
Disaggregation of Revenue
The following table sets forthdepicts the disaggregation of revenue by geographic area based on the billing address of our customers and is consistent with how we evaluate our financial performance (in thousands):
 
Fiscal Year Ended
Year Ended January 31, 201920202021
2016 2017 2018
United States$343,625
 $561,352
 $762,391
United States$979,454 $1,184,923 $1,195,428 
Rest of the world96,708
 166,625
 260,628
Rest of the world380,370 458,517 488,751 
Total revenue$440,333
 $727,977
 $1,023,019
Total revenue$1,359,824 $1,643,440 $1,684,179 


Long-Lived Assets by Geographic Area
Long-lived assets, which are comprised of property and equipment, net, by geographic area are summarized as follows (in thousands):

January 31, At the End of Fiscal
2017 2018 20202021
United States$78,692
 $85,430
United States$113,942 $152,859 
Rest of the world3,003
 3,712
Rest of the world8,798 10,182 
Total long-lived assets$81,695
 $89,142
Total long-lived assets$122,740 $163,041 
 
Note 11.17. 401(k) Plan
We have a 401(k) savings plan (the 401(k) plan) which qualifies as a deferred salary arrangement under section 401(k) of the Internal Revenue Code. Under the 401(k) plan, participating employees may elect to contribute up to 100%85% of their eligible compensation, subject to certain limitations. We have not made any matchingcurrently match 50% of employees' contributions up to a maximum of $4,000 annually. Matching contributions will be immediately vested. Our contributions to date.the plan were $1.4 million, $8.6 million and $10.2 million during fiscal 2019, 2020 and 2021.
91





Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureDisclosure.
None.

Item 9A. Controls and ProceduresProcedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our Chief Executive OfficerCEO and Chief Financial OfficerCFO concluded that, as of January 31, 2018,the end of fiscal 2021, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive OfficerCEO and Chief Financial Officer,CFO, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. Internal control over financial reporting consists of policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) are designed and operated to provide reasonable assurance regarding the reliability of our financial reporting and our process for the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. Our management evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on the results of our evaluation, our management has concluded that our internal control over financial reporting was effective as of January 31, 2018.

the end of fiscal 2021.
The effectiveness of our internal control over financial reporting as of January 31, 2018the end of fiscal 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which appears in Part II, Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting
Except for the implementation of certain internal controls to facilitate our adoption of the new revenue recognition standard effective on February 1, 2018, thereThere was no other change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fourth quarter ended January 31, 2018of fiscal 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.


Item 9B. Other InformationInformation.
None.

92


PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item is incorporated herein by reference to our definitive proxy statement for our 20182021 annual meeting of stockholders (2018(2021 Proxy Statement), which will be filed not later than 120 days after the end of our fiscal year ended January 31, 2018.2021.
Item 11. Executive Compensation.
The information required by this item is incorporated herein by reference to our 20182021 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated herein by reference to our 20182021 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated herein by reference to our 20182021 Proxy Statement.
Item 14. Principal Accounting Fees and Services.
The information required by this item is incorporated herein by reference to our 20182021 Proxy Statement.

93


PART IV
Item 15. Exhibits, Financial Statement SchedulesSchedules.
(a)(1) Consolidated Financial Statements
We have filed the consolidated financial statements listed in the Index to Consolidated Financial Statements, Schedules, and Exhibits included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted because they are not applicable, not material, or the required information is shown in the consolidated financial statements or the notes thereto.
(a)(3) Exhibits
SeeThe documents set forth below are filed herewith or incorporated herein by reference to the location indicated.

94


Exhibit Index immediately following the signature page of this Annual Report on
Incorporation By Reference
Exhibit
Number		DescriptionFormSEC File No.ExhibitFiling Date
3.110-Q001-375703.112/11/2015
3.2S-1333-2063123.49/9/2015
4.1S-1333-2063124.19/9/2015
4.2
Reference is made to Exhibits 3.1 and 3.2.
————
4.38-K001-375704.14/10/2018
4.48-K001-375704.14/10/2018
4.510-K001-375704.53/27/2020
10.1+S-1333-20631210.28/12/2015
10.2+S-1333-20631210.38/12/2015
10.3+S-1333-20631210.49/9/2015
10.4+S-1333-20631210.59/24/2015
10.5+10-K001-3757010.63/25/2016
10.6+8-K001-3757010.13/16/2018
10.7+10-Q001-3757010.18/30/2019
10.8+S-1333-20631210.79/9/2015
10.9+10-Q001-3757010.112/8/2017
10.10+10-Q001-3757010.1412/9/2020
10.11+10-Q001-3757010.212/9/2019
10.12+10-Q001-3757010.1212/9/2020
10.1310-Q001-3757010.139/11/2020
95

Incorporation By Reference
Exhibit
Number		DescriptionFormSEC File No.ExhibitFiling Date
10.14+8-K001-3757010.13/16/2018
10.15+8-K001-3757010.23/16/2018
21.1*————
23.1*————
24.1*————
31.1*————
31.2*————
32.1**————
99.18-K001-3757099.14/10/2018
101.INSXBRL Instance Document————
101.SCHXBRL Taxonomy Extension Schema Document————
101.CALXBRL Taxonomy Extension Calculation Linkbase Document————
101.DEFXBRL Taxonomy Extension Definition Linkbase Document————
101.LABXBRL Taxonomy Extension Label Linkbase Document————
101.PREXBRL Taxonomy Extension Presentation Linkbase Document————
104Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101)————
*Filed herewith.
**Furnished herewith.
+Indicates management contract or compensatory plan.

Item 16. Form 10-K.

10-K Summary.

None.
96

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 26, 201824, 2021
 
PURE STORAGE, INC.
By:/s/ Charles H. Giancarlo
Charles H. Giancarlo
Chief Executive Officer
 

97


POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitute and appoint Charles H. Giancarlo, Timothy Riitters, Scott DietzenKevan Krysler, and John Colgrove and each one of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in their name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated.
 
SignatureTitleDate
/s/ Charles H. Giancarlo
Chief Executive Officer and Director
(Principal Executive Officer)
March 26, 2018
Charles H. Giancarlo
/s/ Timothy Riitters
Chief Financial Officer
(Principal Financial and Accounting Officer)
March 26, 2018
Timothy Riitters
/s/ Scott DietzenChairmanMarch 26, 2018
Scott Dietzen
/s/ John ColgroveChief Technology Officer and DirectorMarch 26, 2018
John Colgrove
/s/ Aneel BhusriDirectorMarch 26, 2018
Aneel Bhusri
/s/ Mark GarrettDirectorMarch 26, 2018
Mark Garrett
/s/ Anita M. SandsDirectorMarch 26, 2018
Anita M. Sands
/s/ Frank SlootmanDirectorMarch 26, 2018
Frank Slootman
/s/ Mike SpeiserDirectorMarch 26, 2018
Mike Speiser
/s/ Michelangelo VolpiDirectorMarch 26, 2018
Michelangelo Volpi


Exhibit Index
    Incorporation By Reference  
Exhibit
Number
 Description Form SEC File No. Exhibit Filing Date
3.1 
Amended and Restated Certificate of Incorporation.
 10-Q 001-37570 3.1 12/11/2015
           
3.2 
Amended and Restated Bylaws.
 S-1 333-206312 3.4 9/9/2015
           
4.1 
Form of Class A Common Stock Certificate of the Company.
 S-1 333-206312 4.1 9/9/2015
           
4.2 
Reference is made to Exhibits 3.1 and 3.2.
 — — — —
           
10.1 
Amended and Restated Investor Rights Agreement, by and between Pure Storage, Inc., and the investors listed on Exhibit A thereto, dated April 17, 2014, as amended.
 S-1 333-206312 10.1 8/12/2015
           
10.2+ 
Pure Storage, Inc. Amended and Restated 2009 Equity Incentive Plan.
 S-1 333-206312 10.2 8/12/2015
           
10.3+ 
Forms of Grant Notice, Stock Option Agreement and Notice of Exercise under the Pure Storage, Inc. 2009 Equity Incentive Plan.
 S-1 333-206312 10.3 8/12/2015
           
10.4+ 
Pure Storage, Inc. 2015 Equity Incentive Plan.
 S-1 333-206312 10.4 9/9/2015
           
10.5+ 
Forms of Grant Notice, Stock Option Agreement and Notice of Exercise under the Pure Storage, Inc. 2015 Equity Incentive Plan.
 S-1 333-206312 10.5 9/24/2015
           
10.6+ 
Form of Restricted Stock Unit Grant Notice and Award Agreement under the Pure Storage, Inc. 2015 Equity Incentive Plan.
 10-K 001-37570 10.6 3/25/2016
           
10.7+ 
Pure Storage, Inc. 2015 Employee Stock Purchase Plan.
 S-1 333-206312 10.6 9/9/2015
           
10.8+ 
Form of Indemnity Agreement, by and between Pure Storage, Inc. and each director and executive officer.
 S-1 333-206312 10.7 9/9/2015
           
10.9+ 
Offer Letter, by and between Pure Storage, Inc. and Charles Giancarlo, dated August 22, 2017.
 10-Q 001-37570 10.1 12/8/2017
           
10.10+ 
Offer Letter, by and between Pure Storage, Inc. and David Hatfield, dated November 13, 2012.
 S-1 333-206312 10.9 8/12/2015
           
10.11+ 
Offer Letter, by and between Pure Storage, Inc. and Timothy Riitters, dated July 14, 2014.
 S-1 333-206312 10.10 8/12/2015
           
10.12+ 
Pure Storage, Inc. Change in Control Severance Benefit Plan.
 S-1 333-206312 10.12 9/24/2015
           
21.1* 
List of Subsidiaries.
 — — — —
           
23.1* 
Consent of Deloitte & Touche LLP, independent registered public accounting firm.
 — — — —
           
24.1* 
Power of Attorney (see signature page to this report).
 — — — —
           
31.1* 
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 — — — —


SignatureTitleIncorporation By ReferenceDate
/s/ Charles Giancarlo
ExhibitChief Executive Officer, Chairman and Director
Number(Principal Executive Officer)
DescriptionFormSEC File No.ExhibitFiling DateMarch 24, 2021
31.2*
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
————
32.1**
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
————
101.INSXBRL Instance Document————
101.SCHXBRL Taxonomy Extension Schema Document————
101.CALXBRL Taxonomy Extension Calculation Linkbase Document————
101.DEFXBRL Taxonomy Extension Definition Linkbase Document————
101.LABXBRL Taxonomy Extension Label Linkbase Document————
101.PREXBRL Taxonomy Extension Presentation Linkbase Document————
Charles Giancarlo
*/s/ Kevan KryslerFiled herewith.
Chief Financial Officer
(Principal Financial and Accounting Officer)
March 24, 2021
**Kevan KryslerFurnished herewith.
+/s/ Scott DietzenIndicates management contract or compensatory plan.Vice Chairman and DirectorMarch 24, 2021
Scott Dietzen
/s/ John ColgroveChief Technology Officer and DirectorMarch 24, 2021
John Colgrove
/s/ Andrew BrownDirectorMarch 24, 2021
Andrew Brown
/s/ Mark GarrettDirectorMarch 24, 2021
Mark Garrett
/s/ Jeff RothschildDirectorMarch 24, 2021
Jeff Rothschild
/s/ Anita SandsDirectorMarch 24, 2021
Anita Sands
/s/ Roxanne TaylorDirectorMarch 24, 2021
Roxanne Taylor
/s/ Susan TaylorDirectorMarch 24, 2021
Susan Taylor
/s/ Greg TombDirectorMarch 24, 2021
Greg Tomb



84
98