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, 2018February 5, 2023
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                      TO
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: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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 5, 2022, the last business day of the registrant's most recently completed second quarter, was approximately $1.6$8.3 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, 2018,24, 2023, the registrant had 162,727,090308,045,301 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 meeting2023 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.
February 5, 2023.


Table of Contents

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Table of Contents
Page
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4
PART I
Item 1.
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Item 1A.
915
Item 1B.
2736
Item 2.
2736
Item 3.
2837
Item 4.
2837
PART II
Item 5.
2938
Item 6.
3140
Item 7.
3341
Item 7A.
4854
Item 8.
5055
Item 9.
7895
Item 9A.
7895
Item 9B.
7895
Item 9C.
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PART III
PART III
Item 10.
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Item 11.
7997
Item 12.
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Item 13.
7997
Item 14.
7997
PART IV
Item 15.
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Item 16.
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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 macroeconomic conditions, including, among other issues, high inflation, rising interest rates, current banking crisis, and a slowdown in demand, 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 the sales and marketing function and channel programs,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, the potential disruptions to our contract manufacturers or supply chain, our expectations concerning relationships with third parties, including our partners, customers, suppliers, and customers,contract manufacturers, the success of the Portworx acquisition and technology, the adequacy of our intellectual property rights, and expectations concerning pendingpotential legal proceedings and related costs.costs, and the impact of adverse economic conditions 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’ business transformation, and the need for real-time analytics increase, we are focused on delivering software-defined all-flash solutionsinnovative and disruptive data storage, products and services that are uniquely fast and cloud-capable for customers, enablingenable customers to maximize the value of their data.
We are a global leader in data gain competitive advantage and keep pace 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, poweredwith a mission to redefine the storage experience by simplifying how people consume and interact with data. Our vision integrates our META AI Enginefoundation of simplicity and reliability with three major market trends that are impacting all organizations large and small: (1) adoption of the cloud operating model everywhere; (2) the increase of modern cloud-native applications; and (3) the shift to modernizing today’s data infrastructure with all-flash.
Our products and subscription services support a wide range of structured and unstructured data, at scale and across any data workloads in hybrid and public cloud environments, and include mission-critical production, test and development, analytics, disaster recovery (DR), and backup and recovery.
Differentiated Technology
Innovation and technology leadership is core to our culture, products and services, and future growth strategies. We have developed highly differentiated technology that is the foundation of our portfolio to create significant and sustainable competitive advantages.
Flash Software and Integrated Hardware Leadership
We pioneered the use of solid-state, All-Flash technology in enterprise storage with a clean-slate approach to building Flash-based systems and have continued to expand our leadership position and technology differentiation across our tightly integrated software and hardware.
Our Purity Software was designed from the ground-up to maximize the benefits of solid-state storage. By focusing on All-Flash, our Purity software is able to deliver superior performance, reliability, cost, density and environmental sustainability efficiencies.
•Performance - Purity optimizes how data is placed and accessed on Flash to dramatically simplifies storage administration, while real-time scanning enablesreduce the overheads and inefficiencies introduced by solid state drives (SSDs), allowing us to finddrive both higher performance and fix issues before they have an impact.greater predictability.
•Reliability - Purity also makes it possible to optimize the use of Flash in our systems. This translates directly into high reliability and durability as well as longer service lifetimes of our arrays.
•Efficiency - Designed-for-flash algorithms and data structures allow us to deliver significantly higher storage efficiency from Flash than magnetic disk-based software by reducing over-provisioning or wasted Flash that would otherwise be needed. Our innovative business model replaces the traditional forklift upgrade cycle with an Evergreen Storage model ofPurity software also delivers data reduction (e.g., compression and deduplication) creating significant savings and efficiencies for our customers.
•Environmental Benefits - Our Flash-optimized integrated hardware and software innovation, supportenables our products to deliver the same amount of data storage requiring significantly less power, space, cooling and maintenance.e-waste when compared to both magnetic disk and competitive all-flash systems.
We were incorporated in October 2009Our Purity software is shared across our products and are headquartered in Mountain View, California, with operations throughout the world. Our primary offerings include our FlashArrayprovides leading enterprise-class data services such as always-on data-reduction, data protection 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 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. Our data platform is used for a broad set of use cases, including database applications, large-scale analytics, artificial intelligence and machine learning, private and public cloud infrastructure and webscale applications, virtual server infrastructure and virtual desktop infrastructure. Our data platform helps customers scale their businesses through real-time and more accurate analytics, increase employee productivity, improve operational efficiency, and deliver more compelling user experiences to their customers and partners.
We sell our data platform predominantly through a high touch, channel-fulfilled model. Our sales force works collaboratively 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, our first all-NVMe, enterprise-class all-flash array, which utilizes our innovative DirectFlash technologies to interface our software directly with raw flash. FlashArray//X became generally available later in the year.
In June 2017, we announced Purity ActiveCluster, a true active/active metro stretch cluster solution,encryption, as well as various new software features including Policy QoS and VVols, and a serieswide range of updates to FlashBlade, including an ultra-fast, all-flash S3 object store and a 17TB blade, which became generally available later in the year. We also announced Pure1 META, the artificial intelligence engine within our platform for delivering on the vision 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.


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 servicesprotocols such as block, file and object. Variants of
The advantages unlocked by our Purity OE have beensoftware are significantly amplified by our integrated DirectFlash hardware technology. With DirectFlash, we build Flash Modules designed to work directly with NAND Flash chips, highly integrated and optimized for both our FlashArrayPurity software. This deep integration of hardware and FlashBlade platforms.software allows us to be a proven leader in all-flash performance, reliability and efficiency from mainstream triple-level cell (TLC) flash and capacity-oriented quad-level cell (QLC) flash that delivers unparalleled density.
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While QLC can make flash more economical, it requires significantly more sophisticated management, optimization and tuning to use effectively. With DirectFlash, we deliver the performance and density benefits of QLC flash, without compromising on efficiency, reliability or performance consistency. With DirectFlash, we are leading the industry, allowing us to accelerate the transition of disk to flash by replacing low-cost hybrid-flash and disk arrays. We have further extended this leadership by enabling customers to harness the cost efficiency of QLC while taming issues that SSD manufacturers have struggled with for years. In close collaboration with key QLC flash partners, we intend to drive our density roadmap for DirectFlash from the current 48TB to 300TB, building a 5x density advantage over our competition leveraging SSDs. Our Purity OE software employs variable block size data reduction algorithmsincreasing density roadmap for DirectFlash also substantially expands our cost and can deliver up to two to five times better data reduction aspower efficiency advantages when compared to both disk and SSDs.
Evergreen Architecture
Our differentiated Evergreen architecture means that our products do not become obsolete or require wholesale replacement like traditional systems. Evergreen allows our arrays to be upgraded non-disruptively, enabling our customers to continuously benefit from the latest hardware and software technology, significantly reducing costly and unnecessary product replacements and associated e-waste. Several key technology elements are required to deliver on our Evergreen promise:
•Future-proof Hardware - We design and build our hardware platforms for higher reliability and longer service lifetimes to provide our customers the maximum benefit of Flash. Our hardware platforms are designed for each component (e.g. storage controllers, flash modules) to be independently replaceable and upgradable, allowing customers to have access to continuous and ever-improving hardware technology without requiring a wholesale replacement.
•Non-Disruptive Upgrades - A critical technology that allows us to keep customer systems continually up-to-date is the ability to upgrade both hardware and software completely non-disruptively. Continuous online improvement, without creating disruption or affecting running production systems, is required for customers to realize the full benefits of Evergreen and are a critical underpinning of delivering a full as-a-Service experience.
•Telemetry and Pure1 - Continuous telemetry collection coupled with intelligent analytics supported by machine learning models allow us to proactively address issues before they occur. This capability delivers both predictive and proactive recommendations, targeted assessments, and workload planning based on knowledge accumulated across our entire fleet. Pure1 allows us to target and focus the most relevant innovation and improvements to our customers, delivered through Evergreen.
Sustainable Technology
Energy reduction and minimizing e-waste is a core part of our business strategy. We continue to invest in and innovate for a carbon-constrained world and are committed to continue delivering products and services that empower our customers to operate sustainably and efficiently while also gaining maximum productivity from their IT investments and reducing costs. Our technology differentiators deliver significant environmental sustainability benefits. DirectFlash allows us to build the most efficient and densest flash modules which has a direct effect on both cost and power efficiency - by providing higher capacity storage on a smaller hardware footprint, we lower the costs of our systems as well as their environmental footprint.
Our product platforms and solutions when compared to our competitors have significantly lower power consumption and e-waste contributing to our customers' achieving their own Environmental, Social and Governance (ESG) objectives.
The environmental benefits of this approach are outlined in our ESG report, which shows that our arrays are more energy efficient than competitive all-flash products. Additionally, two key environmental benefits of our Evergreen architecture include the reduction of both wasted energy and e-waste through non-disruptive upgrades and increased lifespan of our products. For more information about the ESG benefits of our technology, see our ESG report at https://www.purestorage.com/company/corporate-social-responsibility.html. This website reference is provided for convenience only, and the content on the referenced website is not incorporated by reference into this report.
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Products and Subscription Services
Modernizing Infrastructure
We are leading competitive products, resultingthe way to modernize storage infrastructure in our relentless pursuit of delivering the All-Flash Data Center.
•FlashArray Platform provides solutions for block-oriented storage, addressing database, application, virtual machine and other traditional workloads. FlashArray was the industry’s first all-flash array and is driving the industry-wide transition from disk to Flash. FlashArray pioneered the approach of software designed from the ground-up for Flash and set the stage for industry leading simplicity, reliability, and rich data services. FlashArray has evolved through seven generations of controllers, a 100x increase in density, and a transition to all-NVMe flash - all delivered to customers non-disruptively through our Evergreen service.
◦FlashArray//Cdelivers the benefits of NVMe flash, performance and consolidation to simplify Tier-2 storage estates. FlashArray//C extends the core technology of FlashArray and DirectFlash technology to incorporate QLC flash to modernize and replace hybrid-flash and Tier-2 disk arrays. The benefits of QLC delivered by FlashArray//C are only achievable through our DirectFlash integrated hardware and software approach, and places us in a unique and differentiated position to accelerate the transition from disk to flash.
◦FlashArray//XL, our latest addition to the family, sets a new bar of higher performance, scale and capacity for the most demanding workloads.
◦FlashArray File Services.delivers enterprise level multi-protocol file storage on FlashArray. As part of an averageunified approach to block and file data management, File Services reduces operational overhead by giving storage administrators policy driven automated management at the director, share, or virtual machine (VM) level. File Services delivers simplicity of 5-to-1management to a broad set of scale-up file data reduction acrossworkloads including user data and department shares, content repositories such as Picture Archiving and Communication System (PACS) and video data, file-based applications, and now Network File System (NFS) datashares for virtual infrastructure.
•Cloud Block Store provides customers with a wide range of use casesconsistent storage experience and flexibility to operate a hybrid cloud model, leveraging both on-premise and public cloud infrastructure. Cloud Block Store is software-delivered, requires no dedicated hardware running in the public cloud or internet colocation data types. Our software implements strong data-at-rest encryption of all data, all the time,centers, and is designed to maintain performance through failuresbe multi-cloud, presently supporting Amazon Web Services and enables our arrays to be easily upgraded without scheduled downtime, setting new expectations for storage resiliency. With our DirectFlash architecture, recent versions of Microsoft Azure. Cloud Block Store is based upon the same Purity OE have been optimized to speak directly to raw NAND Flash,software that powers FlashArray in on-premise environments, enabling us to overcome the inefficiencies of prior commodity SSD architectures.
Hardware Optimized for Solid-State Memory
The hardware underlying our FlashArray and FlashBlade products is designed to maximize the performance and density of flash, optimize our advanced software services, and minimize overall solution cost for customers. Our platforms are designed to be modular and upgradable over time, enabling our vision of Evergreen Storage 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 flash upgrades, and enables customers to adopt these advances without data migration, downtime or performance impact. This also enables a business model of ongoing up-sell to enable customers to easily expand capacity and performance as theirimplement hybrid cloud workflows.
•FlashBlade Platform provides solutions for unstructured data needs grow.
Our platforms are designed to maximizeworkloads of all types - from 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,most demanding modern "big data'' applications such as true global flashreal-time and log analytics, artificial intelligence (AI), commercial High Performance Computing (HPC) to data protection and recovery. FlashBlade was the industry's first all-flash array optimized for modern unstructured file and object applications, and enables performance at multi-Petabyte scale. FlashBlade is a scale-out system built on hardware and software technology that FlashArray also shares, combining integrated software-defined networking that delivers revolutionary performance and simplicity. FlashBlade's scale, simplicity, and multiple protocols allows customers to consolidate a diverse set of modern workloads while benefiting from cost-effective all-flash performance.
◦FlashBlade//S, the next generation of the product, was introduced in fiscal 2023 with a new architecture that disaggregates resources to allow customers to scale in any direction, enabling a more diverse set of workloads.
◦FlashBlade//E, a scale-out unstructured data repository that will be generally available by the end of April 2023, is built to handle exponential data growth with industry-leading energy efficiency. Priced at under $0.20 per gigabyte including three years of Evergreen service with consumption up to five times less power than the hard disk systems that it will replace, FlashBlade//E provides an acquisition cost that is competitive to disk with lower operational costs.
Modernizing Operations
We are committed to helping customers modernize their operations by delivering modern cloud-oriented services, management with DirectFlash software and FlashArray/automation to customers across their on-premises, private and public cloud environments. These elements form what we call the Cloud Operating Model delivered through our Evergreen architecture.
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•Our EvergreenSubscription family of services includes Evergreen//X's end-to-end NVMe optimization.Forever, Evergreen//Flex and Evergreen//One which leverages our Evergreen Storage architecture. This allows us to modernize technology and seamlessly deliver solutions with high density, power efficiencynew software and tight integrationhardware components as customers upgrade and expand their storage needs.
•Evergreen subscription services allows us to modernize our customer’s arrays (hardware and software), delivering improvements in software, flash and CPU technology without disruption or downtime.
•Renewal pricing for simplicity, allour Evergreen subscription services is “Flat and Fair,” which means that our customers do not need to worry that we will increase the price of these valuable services at a lower cost.renewal.
•Evergreen subscription services includes Pure1, Management, Support and Analytics
Pure1 is aour cloud-based management and support offering that enables our customers, our support staffwhich allows us to deliver predictive and our partners to seamlessly and securely collaborate to maximize the reliability of the Pure Storage platform while minimizing management overhead and cost to the customer. This cloud-based platform removes the need for dedicated storage management infrastructure, enables customers to monitor a global storage deployment from a mobile device and simplifies integration with other data center management solutions. Pure1's Global Insight technology also employs cutting-edge real-time analytics and machine learning technologies to predictivelyproactive insights that identify potential issues with our platform, enabling our support organization to proactively resolve support incidents before they start - leading to higher uptimeoccur and availability for our data platform, and features powered by Pure1 META enable customers to predict both capacity and performance and getprovide intelligent advice on workload, deployment, interactioncapacity and optimization.performance based on machine-learning models.
Innovative Business Model•Our Evergreen subscription services is a key driver of customer satisfaction (reflected in our industry-leading Net Promoter Score).
In addition•Evergreen//Flex is a fleet-level Evergreen architecture that offers users the advantage of storage hardware ownership with a lower upfront cost and a flexible pay-as-you-go subscription. Evergreen//Flex provides the flexibility and adaptability to move performance and stranded capacity to where data and applications need it most, with the security and control that comes from ownership of the solution. This latest model brings the modernization of Evergreen//Forever beyond the box, and is an efficient way to run a fleet of storage enabled by an asset utilization model.
•Evergreen//Oneis our product leadership and differentiated customer experience,service offering built on our innovative business model helps us achieve our vision of Evergreen Storage. We believe that the traditional architecture which allows us to deliver data storage business model is expensive, resource intensive and detrimentally impacts customer operations. Our alternative approach is designed to eliminate this pain. We offercustomers by leveraging a simple all-inclusive softwarecloud operating model and service-level-agreements (SLAs). In fiscal 2023, we included an energy efficiency SLA in Evergreen//One guaranteeing a new approachmaximum number of actual watts per tebibyte (TiB). Powered by FlashArray, FlashBlade and Cloud Block Store, Evergreen//One unifies on-premises and public-cloud storage services in a single storage subscription service that delivers a true hybrid cloud experience. With Evergreen//One, customers have flexibility to the storage array purchase and expansion lifecycle, allowing customers to incrementally improve arraychoose performance and capacity needs as needed, dramatically reducing costwell as where they consume and risk,pay for their storage needs.
•Pure Fusionbrings the simplicity of the cloud operating model anywhere with on-demand consumption and back-end provisioning, delivering an autonomous storage-as-code management platform. Pure Fusion is delivered through a Software-as-a-Service (SaaS) management plane and enables storage administrators to unify storage arrays and optimize storage pools. Pure Fusion allows administrators to offer storage through customized storage service classes providing storage consumers on-demand API-access to storage services, while increasing predictability. This enablesautomating previously complex tasks, such as storage provisioning, workload placement, workload mobility, and fleet rebalancing.
Modernizing Applications
We are focused on helping customers modernize their applications- whether it is meeting the needs of modern unstructured data applications or supporting container-based cloud-native applications with the most robust and complete Kubernetes data platform.
•Portworx by Pure Storage is the market leader in cloud-native Kubernetes data management. As most modern and new software development is shifting to both extendcloud-native architectures, Portworx is the useful lifeonly data management platform that is able to provide robust enterprise-grade container-storage, coupled with data-protection workflows such as Kubernetes backup, DR and migration, and allows customers true portability between on-premise, hybrid cloud and multi-cloud environments. The entire Portworx suite, inclusive of their hardwarePortworx Enterprise, PX-Backup, and avoidPortworx Data Services, is available as-a-service.
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•Portworx Data Services (PDS) is the costindustry’s first Database-as-a-Service Platform for Kubernetes. Modern applications are composed of dozens or even hundreds of microservices, often supported by multiple data services. Managing each of these data services in a dynamic, Kubernetes world is complex and risktime-consuming. With PDS, DevOps engineers can deploy managed, production-grade data services with the click of recurringa button, on and across private and public clouds. With deployment options from the industry’s broadest catalog of databases for SQL, NoSQL, search, streaming, and more, PDS helps developers get started faster. PDS also fully automates Day-2 operations, including monitoring, backups, high availability, DR, migration, auto-scaling, and security.
Our Strategic Growth Pillars
Our growth pillars are driven by two significant secular trends - continued transition from disk to flash, and the cloud-driven adoption of cloud-native applications and the cloud operating model.
Our multi-faceted cloud business objectives include: (i) to be a leader in enabling cloud-native applications; (ii) enable portability of data migration. services and applications across on-premise and cloud-environments; (iii) deliver the full cloud operating model - on-premises and across public clouds; and (iv) lead the transition from disk to flash in the hyperscalers and cloud providers.
Our four strategic growth pillars are described below.
Grow our subscription services business and drive differentiation with as-a-Service and Cloud operating model
We believeare leading in the storage as-a-service market. We are outperforming the market because we are focused on providing these services through our technology rather than merely creating a financial and professional services construct.
We pioneered the Evergreen upgradable architecture that itbrings the benefits of the cloud operating model to an on-premises storage purchase. Evergreen//One extends the Evergreen architecture and subscription to deliver storage to customers as capacity and performance SLAs in a much more flexible, optimized and efficient manner.
Expand All-Flash into new use cases served by disk today
We continue to drive industry disruption by further expanding flash into historical disk use cases, leveraging our flash software leadership, currently with QLC. We see a tremendous growth opportunity as Flash economics coupled with the growth in unstructured data disrupt the current hybrid and mechanical disk market. For instance, FlashBlade//E, a scale-out unstructured data repository built to handle exponential data growth with industry-leading energy efficiency will be difficult for legacy storage vendors to entirely copy our business-model innovations given their disk-based product architectures, the inflexibilitypriced at under $0.20 per gigabyte including three years of hardware upgrades to their platforms, and dependence on complex licensing programs and regular forklift array replacement upgrades.


Evergreen service.
Our Customersextended advantage stems from three technology differentiators: Our leadership with direct-to-NAND software, our integrated hardware/software direct flash modules, and our data reduction capabilities. Because of our highly sophisticated Flash management software requiring less NAND, we drive significant efficiency advantages over SSDs by eliminating over-provisioning, extending endurance and requiring far less common equipment.
We target a varietyModern unstructured data workloads, including artificial intelligence/machine learning (AI/ML), genomics, Internet of largeThings (IoT), self-driving vehicles, and mid-size commercial enterprises, federal, state, and local governments, schools and healthcare organizations globally. Our customer base includes over 4,500 organizations as of January 31, 2018, including over 30% of the Fortune 500. We have deployed our platform at customers across multiple industry verticals. Our platform has been deployed inanalytics, are some of the largest generators of data. They require not just performance and most sophisticated enterprisesscale, but dozens of applications working with that data along the way as it is collected, indexed, processed and analyzed. It requires unifying unstructured data access, which is inherent in our FlashBlade product, across file and object protocols, across input/output (I/O) types, and across application demands.
FlashBlade, combined with our multi-year advantage in flash technology and our leadership with Portworx, puts us in a unique position to win at the confluence of the growth of unstructured data and modern applications.
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Deliver hybrid cloud architecture and data services for modern applications
We are extending our leadership position in delivering the cloud operating model and enabling cloud-native applications. We are empowering our customers to run and operate storage as-a-service, for both traditional and modern applications. We are committed to delivering a hybrid cloud architecture and advancing in the worldhigh-growth space of cloud-native applications. Our Portworx software product is the leader in the enterprise Kubernetes/container data space, providing customers a secure solution to both their primary container storage needs, as well as their critical data workflows like backup, DR and migration.
Portworx, along with Cloud Block Store, allows us to help customers make their hybrid-cloud real by enabling them to run and deploy both traditional and cloud-native apps on-premise and in-cloud with the same process and operations.
Pure Fusion and PDS extend our promise to deliver a true hybrid cloud architecture to hybrid environments. Pure Fusion extends the cloud operating model by automating the delivery of our storage offerings with a Kubernetes-delivered control plane. PDS creates another first mover advantage as we enable IT departments of our customers to provide and manage sophisticated data services with rapid deployment, scaling, management and self-service onboarding for their line of business users.
Gain market share in the core block All-Flash market through innovative leadership
We aim to take market share and outgrow the competition in the core all-flash block market with a proven “Simplicity at Scale” strategy, our highly differentiated customer experience with our Evergreen construct, and additional enterprise and service provider features and capabilities. Our core technology is also charting the path in the hyperscale and large enterprise environments for mainstream flash adoption which were previously dominated by mechanical / spinning disk.
Our Customers
Our global customer base is over 11,000 at the end of fiscal 2023. Both large enterprises and smaller organizations with limited IT expertise or budget, including hospitals, municipalitiesbudgets benefit from using our technology. We have deployed our products and school districts. Hundreds of oursubscription 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%
Our enterprise business model supports the largest global organizations, including hyperscalers and managed service providers (MSPs). Today, we are in approximately 58% of Fortune 500 companies, and the loyalty of our revenue for the year ended Januarycustomers is reflected in our market-leading, certified customer Net Promoter Score (NPS) of 81.4 as of December 31, 2018.2022.
Sales and Marketing
Sales.Sales. We sell our storage platform predominantly throughproducts and subscription services using a high touch, channel-fulfilleddirect sales model.force 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 VMWare, Microsoft, Oracle and SAP, cloud partners such as Microsoft Azure, AWS,Google, and IBM, data protection partners such as Cohesity, Commvault and Veeam and infrastructure partners such as Arista, Brocade, Catalogic, Cisco Citrix, Cohesity, CommVault, Nvidia, RedHat, Rubrik, Symantec, Veeam and VMware.NVIDIA. 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.
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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, Prague, Czech Republic, Bangalore, India, Bellevue, Washington, and Vancouver, Canada. 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.
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 ableWe continue 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 withface various supply-chain challenges which ultimately could negatively impact our contract manufacturers do not provideand suppliers to source parts and build and deliver our products in a timely manner. Our supply chain challenges also include pricing pressure for any specific volume purchase commitments and orders are placed on a purchase order basis.certain materials as well as logistics. We work closely with our contract manufacturers to meet our product delivery requirements and to manage the manufacturing process and quality control. We also utilize a range of training and assessment tools from the Responsible Business Alliance to support continuous improvement in the social, environmental and ethical responsibility of our supply chain.
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 usually 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 and service innovation, features and enhancements, including ease of use, performance, reliability, scalability, and scalability;security;
•Product and service pricing and total cost of ownership;
•Product interoperability with customer networks and backup software;
•Product designs that help customers reduce their carbon footprint and contribute to meeting their environmental sustainability and savings goals;
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•Global sales and distribution capability;capability, including an ability to build and maintain incumbent 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, abilitywe continue to deliver the benefits of all-flash storage to a broad set of customers, management simplicity, ease of use and differentiated customer support.take market share. 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 7002,500 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.
Human Capital Resources
Our People and Organization
We are committed to demonstrating our core values—customer-first, persistence, creativity, teamwork, and ownership — and we believe that the interplay of strategy, organization, talent, and culture enables us to achieve outstanding results for all of our stakeholders.
We employ over 5,100 employees globally - approximately 3,400 in the U.S. and over 1,700 internationally as of the end of fiscal 2023. Our workforce is distributed across over 30 countries and we continue to expand our location strategy to ensure we can obtain the right skills and have adopted a policy under whichglobal mindset with diversity of thinking. Our business growth presents us with the opportunity to attract talent and provide competitive employee value propositions in terms of work environment, pay, benefits, professional development and career growth opportunities that help meet the varying needs of our workforce.
Our human capital strategy is developed by our executive committee and led by our Chief Human Resources Officer (CHRO). The CHRO delivers human capital reports to our Board of Directors and compensation and talent committee on a quarterly basis.
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Attracting, Developing and Retaining Talent
In fiscal 2023, we will not assert patents acquiredgrew headcount by approximately 22%, predominantly to date from third parties offensively, other than as partadvance our innovation, customer experience, and sales coverage.
To foster our employees' and our success, we seek to create an environment where people can thrive and can do their best work. We strive to maximize the potential of our human capital resources by creating a counterclaim.respectful, inclusive work environment with training and development programs that enables our global employees to create products and services that furthers their career goals and our corporate mission. We also have global performance management, and internal mobility programs to enable employee development, growth and performance.
Diversity, Equity, and Inclusion (DEI)
Employees
We continue to make strides to advance DEI. We believe that "walking the expertisetalk" on DEI is not only the right thing to do, but it results in stronger innovation, improved workplace culture and a stronger bottom line. Some of our peopleefforts on DEI include:
•Advancing DEI from the top. In 2022, we launched the Inclusive Leadership Index (ILI) to recognize role model behaviors among our leaders at the VP level and above using several defined DEI factors. Annually, the leaders who attain role model results, according to the ILI, are recognized and given the opportunity to share their best practices internally.
•Supporting employee community and connection. Our Employee Resource Groups (ERGs) are a critical way to advance inclusion and belonging through building strong community, connection and opportunities for development among our employees.
•Driving equitable talent processes, pay and promotions. Our talent management processes include specific steps that ensure our performance reviews are equitable by level. We review pay equity twice a year. In addition we strive to ensure appropriate representation in candidate slates and interviewer panels during the hiring process. We also monitor the career progression ratio of female and underrepresented groups (URGs) versus the overall workforce to ensure equitable promotion practices.
We report on the metrics and progress in the areas mentioned above with our Board of Directors.
Total Rewards
We provide 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 and equity awards as well as health and welfare benefits to employees. We offer a comprehensive and tailored set of benefits to employees and their families. Our total rewards efforts include:
•Support for all stages of life. From early career to retirement, we offer comprehensive and inclusive benefits to employees and their families for all stages including parental and adoption leave.
•Wellness benefits and programs. We encourage employees to practice self-care and proactively manage their mental and physical health. We support employee wellness through customizable programs and offerings ranging from mental health coaching, therapy, as well as nutrition and exercise programs. Employee wellness is also supported through our flexible time off policy.
Our Culture as a Competitive Advantage
Our customer-first culture and commitment to innovation create a thriving company that customers, partners, employees and investors love. Employee listening tools and data sources indicate that our high employee engagement is a key enabler of the positive customer experience and strong net promoter scores. Our Employee Voice Survey is implemented and assessed through a third party vendor. It focuses on measuring employee engagement, organization, team and manager effectiveness, equity, inclusion and belonging, career development and mental health. Our employee NPS has been consistently high since we started this survey a few years ago.
A key tenant of our culture is our commitment to integrity, respect and a safe work environment which is supported by our Speak Up Policy, Code of Conduct, and annual Culture of Compliance survey. We continually remind our employees that they are empowered to report concerns without fear of retaliation through our anonymous speak-up hotline and web portal or through their management chain, HR business partner, or Legal team.
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Environmental, Social and Governance (ESG)
We are committed to advancing our responsible ESG practices and impact across three key pillars: our technology, leadership. We had over 2,100 employees worldwide asour operations, and our people. Our ESG pillars and priority focus areas are informed by an internal ESG prioritization assessment completed in 2021, which assessed topics based on their potential impact to both our own enterprise value creation and the environment and society more broadly. Our ESG governance model is structured to ensure the appropriate amount of January 31, 2018. Asoversight, assessment, and management of January 31, 2018, we had approximately 580, 1,050ESG risks and 180 employees in research and development, sales and marketing and general and administrative functions, respectively,opportunities across our organization. Our Board of Directors provides oversight of each pillar through its committees, with the remainder primarily relatedAudit and Risk Committee overseeing Environment, the Compensation and Talent Committee overseeing Social and the Nominating and Corporate Governance Committee overseeing Governance. In addition, our Board of Directors receives an annual update on ESG practices and our progress in tracking towards our goals.
Our ESG executive sponsors are the Chief Financial Officer, Chief Legal Officer and Chief Technology Officer. They meet regularly and work through VP and director level leaders who lead our internal ESG committees responsible for assessing, managing and progressing the integration of ESG priorities throughout our business operations.
In fiscal 2023, we continued quantifying our greenhouse gas (GHG) emissions across scope 1, 2, and 3 and made a commitment to supportset Science Based Targets (SBTi). We completed a Life Cycle Analysis (LCA) assessment, in accordance with ISO 14040 and operations. None14044 and continue to identify opportunities to reduce the environmental impact of our employees is represented by a labor union or covered by a collective bargaining arrangement.
Information about Segmentproducts and Geographic Areas
The segment and geographic information required herein is contained in Note 10solutions. We remain committed to progressing on each of our Noteskey ESG initiatives, creating value with minimal environmental harm. For more information about our key ESG initiatives, our progress on aligning to Consolidatedthe Task Force on Climate-related Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.Disclosures (TCFD) and Sustainability Accounting Standards Board (SASB) as well as other key standards and frameworks, see our ESG report at https://www.purestorage.com/company/corporate-social-responsibility.html.
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
Our 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, operating results, and cash flows may be adversely impacted by uncertain macroeconomic conditions, including, among other issues, high inflation, rising interest rates, the current banking crisis and a slowdown in demand.

•Our sales cycles can be long, unpredictable and expensive, particularly during a global economic slowdown, making it difficult for us to predict future sales.

•We face intense competition from established companies and new entrants.

•If we do not manage the supply of our products and their components efficiently, our results of operation could be adversely affected.

•If we fail to develop and introduce new or enhanced products successfully, our ability to attract and retain customers could be harmed.

•If we fail to execute our transition to subscription offerings successfully, our revenues and results of operation may be harmed.

•If our security measures are compromised, or the security, confidentiality, integrity or availability of our information technology or data is compromised, our business could experience a material adverse impact.

•Our gross margins are impacted by a variety of factors and vary from period to period, making them difficult to predict with certainty.

•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.

•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.
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Risks Related to 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 overallOur 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 depend to a large extent on our ability to successfully sustain our growth and manage our anticipated expansion. To sustain and manage our growth successfully, we believe that we must,cash flows may be adversely impacted by uncertain macroeconomic conditions, including, among other things, effectively:issues, high inflation, rising interest rates, the current banking crisis and a slowdown in demand.
maintainRecent events and extend our product leadership;
recruit, hire, traintrends, including high inflation, rising interest rates, and manage additional personnel;
maintain and further develop our channel partner relationships;
enhance and expand our distribution andthe current banking crisis, as well as supply chain infrastructure;
expandconstraints and labor shortages and geopolitical tensions involving China, are affecting budgets and confidence and demand among our support capabilities;
forecastcustomers, particularly in the United States where we derive the majority of our revenue. While we have little to no exposure to regional, midsize or small banks, these pressures create a great deal of uncertainty and control expenses;
enhanceaffect customer demand and expand our international operations;margins, costs and
implement, improve operations. Macroeconomic conditions can and maintaindo further exacerbate other risks discussed in this “Risk Factors” section, such as risks related to our internal systems, proceduressales 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.marketing efforts. If we are unable to successfully manage the effects of these pressures, our growth effectively,business, operating results, cash flows and financial condition may be adversely affected.
Our sales cycles can be long, unpredictable and expensive, particularly during a global economic slowdown, making it difficult for us to predict future sales.
Our sales efforts involve educating our customers about the use and benefits of our products and often involves an evaluation process that can result in a lengthy sales cycle, particularly for larger customers and especially in an economic slowdown. We spend substantial time and resources on our sales efforts without any assurance that our efforts will produce any sales. Macroeconomic concerns and the pandemic have impacted our sales efforts, such as by shifting customer priorities and reducing in-person meetings or events. In addition, product purchases are frequently subject to budget constraints, multiple approvals and unplanned administrative 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 may not be ablebelieve largely reflects customer buying patterns of products similar to take advantage of market opportunities or develop new products or enhancements to existingours and other products in the technology industry generally.
Since revenue from a timely manner,product sale is not recognized until performance obligations are satisfied, a substantial portion of our sales late in a quarter may negatively impact the recognition of the associated 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. These factors, among others, make it difficult for us to predict when customers will purchase our 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 business may be harmed by trends in the overall external storage market.
Despite ongoing data growth, the external storage market in which we may failcompete has not experienced substantial growth in the past few years due to satisfy customers’ expectations, maintain product quality, executea combination of technology transitions, increased storage efficiency, competitive pricing dynamics and changing economic and business environments. Some customers are shifting spending toward the public cloud and software as a service, as well as other storage deployment models. 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 and priorities could harm our business, planoperating 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 adequately respond to competitive pressures, each ofthe specific markets in which could adversely impact our growth and affectwe compete would harm our business and operating results.results.
We intend to continue focusing on revenue growth and increasing ourThe evolving market penetration and international presence by investing heavily in our business and this may put pressure on near-term profitability.
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 history in an industry characterized by rapid change, which makes our future operating results difficult to predict.
We were founded in October 2009, but have generated substantially all of our revenue in 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 newdata storage products and services. Our limited operating history makes it difficult to evaluate our current business and our future prospects, including our ability to plan for and model future growth. All of these factors make our future operating results difficult to predict, which may impair our ability to manage our business and reduce investors’ ability to assess our prospects.


Investors should not consider our revenue growth in prior quarterly or annual periods as indicative 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.
The market for all-flash 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, scalability and other 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. Sales ofWe continue to expand our products have largely focused on use cases that require performancelarge capacity data storage products such as virtualizationto compete directly with hard disk systems, and transaction processing. Some potential customers havethat strategy may take longer or may not purchasedbe successful due to unforeseen factors. The enhancement of 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, offerings
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Offerings 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.
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;
•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. 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
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We rely on contract manufacturers to manufacture our products, and if we fail to manage our relationships with our contract manufacturers successfully, our business could be negatively impacted.
We rely on a limited number of contract manufacturers to manufacture our products, 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 will be impaired, potentially on short notice, and our competitive position, reputation and financial results could be harmed. If we are required, 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 revenue will substantially dependcomponent 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 exacerbate other risk factors and 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 our 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. If we are unable to obtain components from our existing suppliers, we may need to obtain these components through secondary sources or markets which could result in higher costs, delays and/or components which do not meet our quality requirements. While we actively monitor and manage our supply chain, we cannot anticipate the potential impact that a variety of factors, such as COVID-19 restrictions, 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 flash;
•price volatility for the components of our products;
•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, 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 abilitysourcing partners. For example, there have been, and may continue to attract, motivatebe, significant changes to U.S. trade policies, legislation, treaties and retain sales, engineeringtariffs, including announcements of import tariffs and otherexport restrictions. As new legislation and/or regulations are implemented, existing trade agreements are renegotiated or terminated, and trade restrictions and 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 a sufficient supply of these key personnel, includingcomponents in the future or that the cost of these components will not increase. If our management team,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 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, as the value of our stock fluctuates and as our employees have 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. Members of our management team, including our 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, 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 realizecontinue to procure components at reasonable prices, which may impact our business negatively or require us to enter into longer-term contracts to obtain components. Any of the expected benefits of this investment orforegoing disruptions could exacerbate other risk factors and increase our revenue.
If we fail to developcosts and introduce new or enhanced products successfully,decrease 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,gross margins, harming our business, operating results and financial condition could be harmed. Similarly, ifcondition.
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If we fail to introduce new or enhanced products, such as new or improved software features, that meetdo not manage the needssupply of our customers in a timely or cost-effective fashion, we may lose market shareproducts and their components efficiently, our operating results of operation could be adversely affected.
Managing the supply of our products and underlying components is complex and has become increasingly difficult, in part, due to supply chain constraints, component quality and inflationary pressure. Our researchthird-party contract manufacturers procure components and development effortsbuild 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 not produce successfulissue orders 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. 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 significant revenue in the near future, if at all.
Developing new productslower gross margins. Alternatively, insufficient supply levels may lead to shortages that exacerbate other risk factors 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,delayed revenue, reduced product margins or loss of sales opportunities altogether. If we are more expensiveunable 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 researcheffectively manage our supply and development for new products and related opportunities. We believe that we must continue to dedicate significant resources toinventory, 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, whichresults of operations could be adversely affect our business and operating results.affected.
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; and
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 and unpredictable, particularly with respect to large orders, and our sales efforts require considerable time and expense. As a result, 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.
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 an evaluation and testing process that can result in a lengthy sales cycle. We spend substantial time and resources on our sales efforts without any assurance that our efforts will produce any sales. In addition, product purchases are frequently subject to budget constraints, multiple approvals and unplanned administrative, processing and other delays. 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 sale until title is transferred for the product, if we have a substantial portion of our sales at the end of a quarter, we may be unable to transfer title and recognize the associated revenue in that quarter. 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 may purchase our products. We may expend significant resources on an opportunity without ever achieving a sale, 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 contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture, and our business may be harmed.
We believe that a critical contributor to our success has been our company culture, which 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 that the difference between our sales, support and engineering cultures, relative to those of incumbent vendors, is a key competitive advantage and differentiator for our customers and partners. As we grow and change, 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.
Because our long-term success depends, in part, on our ability to expand the sales of our products to customers located outside 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, our business, operating results and financial condition generally.
The sales prices 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 timely basis, or that our 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 revenue 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 products 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 increase our revenue or achieve and maintain profitability.
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 of our contracts with customers contain provisions relating to warranty disclaimers and liability limitations, which may be difficult to enforce. Defending a lawsuit, regardless of its merit, would be costly and might divert management’s attention and adversely affect the market’s perception of us and our products. Our business liability insurance coverage could prove inadequate with respect to a claim and future coverage may be unavailable 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, weWe 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 of our competitors and protect our brand and customer goodwill now or in the future, our business will be adversely affected.
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Sales 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 sales efforts. 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, 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, functionality and reliability and that meet the expectations of our customers, which is a complex and uncertain process. We believe that we must continue to dedicate significant resources to our research and development efforts and innovate business models such as Evergreen//One to maintain or expand our competitive position. We continue to expand our large capacity data storage products to compete directly with hard disk systems. Our investments may take longer to generate revenue or may generate less revenue than we anticipate. The introduction of new products by our competitors, or the emergence of alternative technologies or 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 our customers to adopt new products and features. 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 our customers' needs in a timely or cost-effective fashion, we may lose market share and our operating results could be adversely affected.
If 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 on a subscription basis, including our hardware and software products through Evergreen//One and Cloud Data Services. These business models are relatively new to the storage market and will continue to evolve, and we may not be able to compete effectively, drive continued revenue growth or maintain the profitability with these business models. These business models require different accounting of our customer transactions, such as changing how we recognize revenue and capitalize commissions, among other things. In addition, these business models may require compliance with additional regulatory, legal and trade licensing requirements in some countries. 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 will cause us to incur incremental operational, technical, legal and other costs. Additionally, the subscription models offered by us and our 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.
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Our products mustare highly technical and may contain defects or bugs, which could cause data unavailability, loss, breach or corruption that might, in turn, result in liability 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 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. We have, from time to time, identified vulnerabilities in our products. Despite our efforts to detect and remediate actual and potential vulnerabilities in our systems, we cannot be certain that we will be able to address any such vulnerabilities, in whole or part, and there may be delays in developing and deploying patches and other remedial measures to adequately address vulnerabilities. We may also incur unexpected costs associated with replacing defective hardware or ensuring that hardware remains interoperable and upgradable. Any of these errors, defects, bugs or security vulnerabilities may leave us, our products and our customers susceptible to exploitation, including by malicious actors. Any errors, defects or security vulnerabilities in our products could result in a loss of revenue, injury to our reputation, 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. We may not be able to enforce provisions in our contracts relating to warranty disclaimers and liability limitations. Defending a lawsuit, regardless of its merit, would be costly and could divert management’s attention and adversely affect the market’s perception of us and our products. Our business liability insurance coverage may be inadequate with respect to a claim and future coverage may not be available 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.
If we are unable to ensure that our products 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.
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.
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Our ability to successfully market and sell our products is dependent in part on ease of use and the quality of our supportcustomer experience offerings, and any failure to offer high-quality installationtechnical services and technical support could harm our business.
Once our products are deployed withinby our customers’ data centers,customers, customers depend on our supportcustomer experience organization to drive non-disruptive upgrades and resolve technical issues relating to our products. Our ability to provide effective supporttechnical services 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 supportservices 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 installationtechnical services and technical support could harm our reputation, our ability to sell our products to existing and prospective customers and our business.


Risks Related to Our Operating Results or Financial Condition
We relyintend to continue focusing on contract manufacturersrevenue growth and increasing our market penetration and international presence by investing in our business, which may put pressure on near-term profitability.
Our operating expenses largely are based on anticipated revenue, and a high percentage of our expenses are, and will continue to manufacture our products, and ifbe, fixed in the short term. If we fail to adequately increase revenue and manage our relationship with our contract manufacturers successfully,costs, we may not achieve or maintain profitability in the future. As a result, our business could be negatively impacted.
harmed, and our operating results could suffer. Our strategy is to continue investing in marketing, sales, support and research and development. We relybelieve 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 experience losses, forgoing near-term profitability on a limited numberU.S. GAAP basis.
Our gross margins are impacted by a variety of contract manufacturersfactors and vary from period to manufacture our products. period, making them difficult to predict with certainty.
Our reliance on contract manufacturers reduces our control over the assembly process, and exposes usgross margins fluctuate from period to risks, such as reduced control over quality assurance,period due primarily to product costs, customer mix and product supply. 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, product warranty, order rescheduling and cancellations;
•the timing of technical support service contracts and contract renewals;
•inventory stocking requirements to mitigate supply chain constraints, accommodate unforeseen demand or support new product introductions; and
•inflation and other adverse economic pressures.
If we failare unable to manage these factors effectively, our gross margins may decline, and fluctuations in gross margins may make it difficult to manage our relationships with these contract manufacturers effectively,business and achieve or if these contract manufacturers experience delays, disruptions, capacity constraints or quality control problems, our ability to timely ship products to our customers could be impaired and our competitive position and reputation could be harmed. If we are required to, for whatever reason, 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 these 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.
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;
price volatility for the components of our products;
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.
As a result of these risks, we cannot assure investors that we will be able to obtain enough 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,maintain profitability, which could extend our lead times, increase the costs of our components andmaterially harm our business, operating results and financial condition. Even if
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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;
•the impact on timing and amount of revenue recognized resulting from the cancellation of unfulfilled orders by our customers or our inability to fulfill orders;
•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, shipping logistics, 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 or mitigate costs, including our operating expenses, to support business growth and our continued expansion;
•the impact of inflation on labor and other costs, other adverse economic conditions and the impact of public health epidemics or pandemics; 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, the introduction of competing products or services or promotional programs, a change in our mix of products and services, cost of components, supply chain constraints and inflation and other adverse economic conditions. Uncertain macroeconomic conditions have impacted NAND pricing which could result in lower sales prices. Competition continues in the markets in which we participate, and we expect competition to 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 successfulrequired to decrease our prices to be competitive and are not able to offset this decrease by increases in growingthe volume of sales or the sales of new products with higher margins, our business,gross margins and operating results could be adversely affected.
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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 procure componentsexpand and experience growth in future periods. For example, we delivered year-over-year revenue growth of 26% for fiscal 2023 and our headcount increased from over 3,800 at reasonable prices, which may require usthe end of fiscal 2021 to enter into longer-term contracts with component suppliersover 4,200 employees at the end of fiscal 2022, and to obtain these componentsover 5,100 employees at competitive prices. This could increasethe end of fiscal 2023. Our future operating results will depend to a large extent on our costsability to successfully sustain our growth and decreasemanage our gross margins, harmingcontinued expansion. To sustain and manage our growth successfully, we believe that we must, among other things, effectively allocate resources and operate our business operating resultsacross a wide range of priorities.
We expect that our future growth will continue to place strain on our managerial, administrative, operational, financial and financial condition.
Managingother resources. We will incur costs associated with this future growth prior to realizing the supplyanticipated 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 products and their 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.performance. In order to reduce manufacturing lead times and plan for adequate component supply, from time to timefuture periods, we may issue forecasts 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 thatnot achieve similar percentage revenue growth rates as we have excess supply, we may have to reduce our prices and write down or write off excess or obsolete inventory,


whichachieved 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.some past periods. If we are unable to effectivelymaintain 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 supplygrowth successfully, we may not be able to take advantage of market opportunities or release new products or enhancements in a timely manner, and inventory,we may fail to satisfy customers’ expectations, maintain product quality, execute on our resultsbusiness plan or adequately respond to competitive pressures, each of operationswhich could be adversely affected.impact our growth and affect our business and operating results.
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.
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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 Evergreen//One, 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.
Risks Related to Our Operations
If our security measures, or those maintained on our behalf, are compromised now, or in the future, or the security, confidentiality, integrity or availability of our information technology, software, services, networks, products, communications or data is compromised, limited, or fails, our business could experience a material adverse impact, including without limitation, a material interruption to our operations, harm to our reputation, a loss of customers, significant fines, penalties and liabilities, or breach or triggering of data protection laws, privacy policies or other obligations.
In the ordinary course of our business, we collect, store, transmit and otherwise process proprietary, confidential and sensitive data, including by using 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.
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Cyberattacks, malicious internet-based activity and online and offline fraud are prevalent and continue to increase. These threats are becoming increasingly difficult to detect. The threats to information systems and information may include: traditional computer “hackers,” social engineering schemes (for example, attempts to induce fraudulent invoice payments or divert money to us), software bugs, malicious code (such as viruses and worms), personnel misconduct or error, faulty password management, theft, denial-of-service attacks (such as credential stuffing), advanced persistent threat intrusions, as well as attacks from nation-state and nation-state supported actors. We may also be the subject of phishing attacks, viruses, malware installation, server malfunction, software or hardware failures, loss of data or other computer assets, adware and other similar issues. Additionally, ransomware attacks, including those from organized criminal threat actors, nation-states and nation-state supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions, delays, or outages in our operations, disruptions in our services, loss of data, loss of income, significant extra expense to restore data or systems, reputational loss and the diversion of funds. To alleviate the financial, operational and reputational impact of a ransomware attack, it may be preferable to make extortion payments, but we may be unwilling or unable to do so (including, for example, if applicable laws or regulations prohibit such payments). Similarly, supply chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain have not been compromised or that they do not contain exploitable defects or bugs that could result in a numberbreach of ways,or disruption to our platform, systems and network or the systems and networks of third parties that support us and our business.
We devote significant resources to network security, authentication technologies, data encryption and other security measures designed to protect our systems and data, including by reducing sales, lengthening sales cyclesto secure the transmission and lowering pricesstorage of data and prevent third-party access to our data or accounts, but there can be no assurance that our security measures or those of our service providers, partners and other third parties upon whom we rely will be effective in protecting against a security incident or the materially adverse impacts that may arise from a security incident. Any destructive or intrusive breach of our internal systems could result in the information stored on our networks, including, without limitation, source code for our products and services.services or the networks and systems of third parties upon whom we rely 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 our products, systems and data, or if we were perceived to have such a security incident, 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, including, without limitation, class action litigation, and other possible liabilities. A security incident could also result in government enforcement actions that could include investigations, fines, penalties, audits and inspections, additional reporting requirements and/or oversight, temporary or permanent bans on all or some processing of personal information.
Moreover, applicable data protection laws, contracts, policies and other data protection obligations may require us to notify relevant stakeholders of security incidents, including affected individuals, customers, regulators, and credit reporting agencies. Such disclosures are costly and the disclosures or the failure to comply with such requirements could lead to material adverse impacts such as negative publicity, loss of customer confidence in our services our security measures, investigations and private or government claims. Security incidents that impact our information technology systems could also result in breaches of our contracts (some of which may not have liability limitations and/or require us to indemnify affected parties) and could lead to litigation with customers, partners or other relevant stakeholders. These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our costs of doing business and adversely affect our reputation or otherwise adversely affect our business.
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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. Further, we face new challenges regarding workforce planning, employee expectations regarding the ability to work from home or remotely and maintaining employee productivity, as well as higher employee turnover and slower hiring rates. If we are unable to adequately address these challenges, our ability to recruit and retain employees and to ensure employee productivity could be negatively affected. 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, 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 evolving economic and budgetary constraints. 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 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 our 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, support and engineering cultures and those of incumbent vendors, is a key competitive advantage and differentiator for our customers and partners. As we grow and change or are required to adapt to changes in business operations, including expectations around work location, 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;
•establishing relationships with channel partners in international locations;
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•increased travel, infrastructure and legal compliance costs associated with international locations;
•requirements to comply with a wide variety of laws and regulations associated with international operations, including taxes, customs and licensing requirements;
•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, war 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 tax law changes, could expose us to potentially adverse tax consequences.
Changes in federal, state, or international tax laws or tax rulings could adversely affect our effective tax rate and our operating results. Due to expansion of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and adversely affect our financial condition and operating results. 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 proposed tax legislation 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.
The Tax Cuts and Jobs Act of 2017 amendments to Internal Revenue Code (IRC) Section 174 require that specific research and experimental expenditures be capitalized and amortized over five years if incurred in the U.S. or fifteen years if incurred in a foreign jurisdiction beginning in our fiscal 2023. Although Congress is considering legislation that would defer, modify or repeal this capitalization and amortization requirement, the possibility that this will happen is uncertain. If this requirement is not deferred, modified or repealed, we may continue to incur additional cash taxes.
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.
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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.
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 7002,500 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.technology, as well as laws relating to forced labor and conflict minerals. 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, or to timely provide requested documentation, 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.
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.
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.
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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 can borrow, 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 be required to expend a significant amount of funds 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.
On October 14, 2022, we provided notice to holders of the Notes, electing to settle all conversion on or after October 15, 2022 by a combination settlement (as defined in the indenture for the Notes) with a specified dollar amount (as defined in the indenture for the Notes) of $1,000 per $1,000 principal amount of Notes. Upon a conversion or repurchase of the Notes, we will be required to make significant cash payments in respect of the Notes being converted or repurchased. We currently intend to settle the principal amount of the Notes in cash.
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.
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, or to make cash payments in connection with any conversion of 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 business as usual.make 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 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. However, for conversions prior to maturity, the capped call transactions would be settled at their fair value, which may be substantially less than the value of the consideration in excess of the principal amount of the Notes delivered upon such conversion.
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.
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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,$36.00, through March 1, 2018.24, 2023. 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 lingering impact of the 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.
Our Board of Directors has periodically authorized share repurchases, funded from available working capital, including up to $250.0 million authorized in March 2023. 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.
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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 boardBoard of directorsDirectors so that not all members of our boardBoard of directorsDirectors are elected at one time;


•authorize the issuance of “blank check” preferred stock that our boardBoard of directorsDirectors 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 boardBoard of directorsDirectors is expressly authorized to make, alter or repeal our bylaws; and
•establish advance notice requirements for nominations for elections to our boardBoard of directorsDirectors 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.

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General Risk Factors
Adverse economic conditions may harm our revenues, profitability and financial condition.
Our operations and performance depend in part on worldwide economic conditions and the economic health of our current and prospective customers. We have experienced global economic uncertainty, inflation, rising interest rates, financial distress caused by recent or potential bank failures and the associated banking crisis, civil unrest and political and fiscal challenges in the United States and abroad and may continue to experience these events in the future, which 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 current banking crisis and interest rate hikes, the Russian invasion of Ukraine and the related sanctions and disruptions, 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, 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.
The majority of our cash and cash equivalents are primarily invested with large financial institutions that we believe are stable and of high quality. Such deposits exceed federally insured limits. If such institutions were to fail, we could lose all or a portion of those amounts held in excess of such insurance limitations. While the FDIC continues to address the situation with SVB and other similarly situated banking institutions, the risk of loss in excess of insurance limitations has generally increased.
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 war, computer viruses or terrorism or by the impact of public health epidemics or pandemics.
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 war, terrorism or malicious computer viruses, and public health epidemics or pandemics, 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 North and South America, as well as Canada and Mexico.America. 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.

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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.
Item 4. Mine Safety Disclosures.
Not applicable.

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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 forth the high and low sales price per share 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
Our Class B common stock is not listed nor traded on any stock exchange.
Holders of Record
As of January 31, 2018,March 24, 2023, there were 1637 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 boardBoard of directors,Directors, subject to applicable laws, and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our boardBoard of directorsDirectors 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 2023 (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 7, 2022 - December 4, 2022$— — $98,544 
December 5, 2022 - January 1, 2023$28.13 1,581 $54,066 
January 2, 2023 - February 5, 2023$27.33 841 $31,088 

(1) In March 2022, our Board of Directors authorized additional share repurchases of up to $250.0 million of our outstanding common stock under our share repurchase program. In March 2023, our Board of Directors authorized additional share repurchases of up to $250.0 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 2023 (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 7, 2022 - December 4, 2022$28.36 4 $112 
December 5, 2022 - January 1, 2023$27.52 122 $3,359 
January 2, 2023 - February 5, 2023$— — $— 
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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 February 5, 2023. 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, 2018.2018 and assumes the reinvestment of any dividends. The returns shown are based on historical results and are not intended to suggest future performance.
pstg-20230205_g1.jpg

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Item 6. Selected Financial Data.[Reserved]
The selected consolidated statements of operations data for the years ended January 31, 2016, 2017 and 2018 and the consolidated balance sheet data as of January 31, 2017 and 2018 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, 2014 and 2015 and the consolidated balance sheet data as of January 31, 2014, 2015 and 2016 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.

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 Year Ended January 31,
 2014 2015 2016 2017 2018
 (in thousands, except per share data)
Consolidated Statements of Operations Data:     
  
  
Revenue:     
  
  
Product$39,228
 $154,836
 $375,733
 $590,001
 $813,985
Support3,505
 19,615
 64,600
 137,976
 209,034
Total revenue42,733
 174,451
 440,333
 727,977
 1,023,019
Cost of revenue:     
  
  
Product (1)
19,974
 63,425
 132,870
 194,150
 275,242
Support (1)
4,155
 14,127
 35,023
 58,129
 78,539
Total cost of revenue24,129
 77,552
 167,893
 252,279
 353,781
Gross profit18,604
 96,899
 272,440

475,698
 669,238
Operating expenses:     
  
  
Research and development (1)
36,081
 92,707
 166,645
 245,817
 279,196
Sales and marketing (1)
54,750
 152,320
 240,574
 360,035
 480,030
General and administrative (1) (2)
5,902
 32,354
 75,402
 84,652
 95,170
Legal settlement (3)
—
 —
 —
 30,000
 —
Total operating expenses96,733
 277,381
 482,621
 720,504
 854,396
Loss from operations(78,129) (180,482) (210,181) (244,806) (185,158)
Other income (expense), net(141) (1,412) (2,002) 1,627
 11,445
Loss before provision for income taxes(78,270) (181,894) (212,183) (243,179) (173,713)
Provision for income taxes291
 1,337
 1,569
 1,887
 3,889
Net loss$(78,561) $(183,231) $(213,752)
$(245,066) $(177,602)
Net loss per share attributable to common stockholders, basic and diluted$(3.24) $(6.56) $(2.59) $(1.26) $(0.84)
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

(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 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 stock 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.


   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



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’ business transformation, and the need for real-time analytics increase, we are focused on delivering software-defined all-flash solutionsinnovative and disruptive data storage, products and services that are uniquely fast and cloud-capable for customers, enablingenable customers to maximize the value of their data.
We are a global leader in data gain competitive advantage and keep pace 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 model of hardware and software innovation, support and maintenance.
We were incorporated in 2009 with a mission to redefine the storage experience by simplifying how people consume and interact with data. Our vision to define the next generationintegrates our foundation of enterprise storage by pioneering the all-flash array categorysimplicity and innovating a customer-centric business model. We deliver our platform as our flash-optimized softwarereliability with three major market trends that are impacting all organizations large 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 software that is cloud-connected for management from anywhere 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%small: (1) adoption of the Fortune 500. cloud operating model everywhere; (2) the increase of modern cloud-native applications; and (3) the shift to modernizing today’s data infrastructure with all-flash.
Our products and subscription services support a wide range of structured and unstructured data, at scale and across any data workloads in hybrid and public cloud environments, and include mission-critical production, test and development, analytics, disaster recovery, and backup and recovery.
Recent Developments
•In May 2022, we released Pure Fusion for general availability which enables enterprises and managed service providers (MSPs) to implement a cloud operating model by automating and orchestrating their data storage environment and offer storage services to customers include large and mid-size organizations acrossdevelopers through application programming interfaces (APIs), dramatically accelerating developer workflow.
•In June 2022, we introduced a diverse setnumber of industry verticals, including cloud-based softwarenew portfolio and service providers, consumer web, education,offerings at our annual user conference, Pure//Accelerate® techfest22:

•The new FlashBlade//S family of products, built with a new modular architecture that shares components with Pure's industry leading FlashArray. The highly flexible, all-QLC system combines performance and cost effectiveness to address the demands of unstructured data and modern application growth.

•Expansion of the Evergreen family: To advance our leadership in delivering Storage-as-a-Service (STaaS) while supporting customers wherever they are in their journey to embracing flexible delivery models, we expanded our portfolio of Evergreen offerings with the introduction of Evergreen//Flex. Our portfolio of Evergreen offerings include:
▪Evergreen//Forever: Formerly known as Evergreen Gold
▪Evergreen//Flex, a fleet-level Evergreen subscription, which gives customers a utilization-based consumption model and flexibility to deploy and shift capacity across their fleet over time
▪Evergreen//One: Formerly known as Pure as-a-Service
•In March 2023, we announced FlashBlade//E, a scale-out unstructured data repository built to handle exponential data growth with industry-leading energy financial services, governments, healthcare, manufacturing, media, retailefficiency. FlashBlade//E is anticipated to be generally available by the end of April 2023 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 and 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.priced at under $0.20 per gigabyte.
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.
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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.Uncertain Macro Environment


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 businessactively monitor, evaluate and respond to developthe current uncertain macro environment. We have experienced longer sales cycle and deliver a data platform to support today and tomorrow’s volume and velocity of data and to ensure the performance requiredprogression for new data-driven applications, while substantially


reducing costs and complexity for our customers. Our ability to deliver new and enhanced products will be a key factor in capturing mindshareopportunities, most notably with our target customers to become their data platform of choice.U.S. enterprise customers.

Adoption of All-Flash Storage Systems

Organizations are increasingly replacing traditional disk-based systems with all-flash storage systems, due to their higher performance, reliability and efficiency. Flash is expected to penetrate the data center at a rapid rate,The macro environment remains unpredictable and our success depends on the adoptionpast results may not be indicative of all-flash storage systems. To the extent more organizations recognize the benefits of all-flash storage and the adoption of all-flash storage increases, our target customer base will expand, and demandfuture performance. See "Risk Factors" in Part I, Item 1A for all-flash storage will rise.additional details.

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 in the first quarter of our fiscal year 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.

Components of Results of Operations

Revenue
We derive revenue primarily from the sale of our storage infrastructure products, FlashArray and supportFlashBlade, and subscription services which include our portfolio of Evergreen offerings and Portworx. 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. For Evergreen//Flex, product revenue is recognized upon the commencement of the underlying subscription services. Products are typically shipped directly by us to customers, and our channel partners generally 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 storage solutions 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 manufacturingsupply chain 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 and inventory write-offs.product warranty costs, amortization of intangible assets pertaining to developed technology and capitalized internal-use software, and 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.
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 operatingOperating 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, data center and cloud services costs, third-party engineering and contractor support costs, as well as allocated overhead. We expect our research and development expenseexpenses 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.
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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 expand our sales force and increase our marketing resources, expand into new markets and further develop our channel program.
General and Administrative. General and administrative expense consists primarily of compensation and related expenses for administrative functions including finance, legal, human resources, IT and fees for third-party professional services, as well as 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 investrealize efficiencies from scaling our business.
General and Administrative. General and administrative expenses consist primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, facilities, 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 expenses to increase in the growthabsolute dollars and it may decrease as a percentage of our business.revenue as we continue to drive operational excellence.
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.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. Our foreign subsidiaries earn a profit margin based upon transfer pricing principles which require an arm’s length return. Our foreign subsidiaries' sales and marketing expenses are expected to increase over time as we grow, resulting in higher pre-tax foreign earnings and higher foreign income taxes.
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.

43



Results of Operations
Basis of Presentation
We operate using a 52/53 week fiscal year ending on the first Sunday after January 30. Fiscal 2021 and 2023 were both 52-week years that ended on January 31, 2021 and February 5, 2023, respectively. Fiscal 2022 was a 53-week year that ended on February 6, 2022. Unless otherwise stated, all dates refer to our fiscal years.
Year Over Year Comparisons
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
 20212022$%20222023$%
(in thousands)
Product revenue$1,144,098 $1,442,338 $298,240 26 %$1,442,338 $1,792,153 $349,815 24 %
Subscription services revenue540,081 738,510 198,429 37 %738,510 961,281 222,771 30 %
Total revenue$1,684,179 $2,180,848 $496,669 29 %$2,180,848 $2,753,434 $572,586 26 %
  Year Ended January 31, Change Year Ended January 31, Change
  2016 2017 $ % 2017 2018 $ %
  (dollars in thousands)
Product revenue $375,733
 $590,001
 $214,268
 57% $590,001
 $813,985
 $223,984
 38%
Support revenue 64,600
 137,976
 73,376
 114% 137,976
 209,034
 71,058
 52%
Total revenue $440,333
 $727,977
 $287,644
 65% $727,977
 $1,023,019
 $295,042
 41%
Total revenue increased in fiscal 2023 by $295.0$572.6 million, or 41%26%, during the year ended January 31, 2018 compared to the year ended January 31, 2017.fiscal 2022, driven by demand from enterprise, commercial and public sector customers across our entire product and solutions portfolio and key geographies. The increase in product revenue during fiscal 2023 compared to fiscal 2022 was driven by repeat purchasesincreased sales from existing customersour entire portfolio of FlashArray 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.FlashBlade products, including FlashArray//C, FlashArray//XL and FlashBlade//S. The increase in supportsubscription services revenue was primarilylargely driven by an increaseincreases in maintenance and support agreements sold with increased product sales of our Evergreen subscription services, including Evergreen//One, as well as increased recognition of deferred support revenue contracts.from previously contracted Evergreen subscription services.
Total revenue increased in fiscal 2022 by $287.6$496.7 million, or 65%29%, during the year ended January 31, 2017 compared to fiscal 2021, driven by sales to new and existing enterprise, commercial and public sector customers, with particular strength in the year ended January 31, 2016.United States, across our entire product and solutions portfolio and key geographies. The increase in product revenue during fiscal 2022 compared to fiscal 2021 was primarily driven by increased sales from our entire portfolio of FlashArray and FlashBlade solutions, including sales of FlashArray//C to a large hyperscaler customer, and repeat purchases fromsales to existing customers and a growing number of new customers. The number of customers grew from over 1,650 as of January 31, 2016 to over 3,000 as of January 31, 2017. The increase in supportsubscription services revenue was largely driven primarily by an increaseincreases in maintenance and support agreements sold with increased product sales of our Evergreen subscription services, including Evergreen//One, as well as the full yearincreased Portworx revenue.
During fiscal 2023 compared to fiscal 2022, total revenue impact from such agreements sold in the previous year.United States grew by 25% from $1.6 billion to $2.0 billion and total rest of the world revenue grew by 30% from $600.8 million to $781.7 million. During fiscal 2022 compared to fiscal 2021, total revenue in the United States grew by 32% from $1.2 billion to $1.6 billion and total rest of the world revenue grew by 23% from $488.8 million to $600.8 million.

Subscription Annual Recurring Revenue (ARR)

We use Subscription ARR as a key business metric to evaluate the performance of our subscription services. Subscription ARR should be viewed independently of revenue, deferred revenue and remaining performance obligations and is not intended as a substitute for any of these items.
Subscription ARR is calculated as the total annualized contract value of all active customer subscription agreements at the end of a fiscal quarter, plus on-demand revenue for the quarter multiplied by four. Contract values are established prior to any adjustments made in accordance with ASC 606.
44

The following table sets forth our Subscription ARR for the periods presented (dollars in thousands):
At the End ofYear-over-Year Growth
Fiscal 2022Fiscal 2023%
Subscription annual recurring revenue$848,776 $1,101,301 30 %
Deferred Revenue
Deferred revenue primarily consists of amounts that have been invoiced but have not yet been recognized as revenue 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
20222023
Beginning balance$843,697 $1,079,872 
Additions937,510 1,248,417 
Recognition of deferred revenue(701,335)(942,639)
Ending balance$1,079,872 $1,385,650 
Revenue recognized during fiscal 2022 and 2023 from deferred revenue at the beginning of each respective period was $442.7 million and $567.8 million.
Remaining Performance Obligations
Total remaining performance obligations (RPO) which is total contracted but not recognized revenue was $1.8 billion at the end of fiscal 2023. RPO consists of both deferred revenue and non-cancelable amounts that are expected to be invoiced and recognized as revenue in future periods. Product orders are generally cancelable until delivery has occurred, and as such unfulfilled product orders are excluded from RPO. Cancelable orders will fluctuate depending on numerous factors. Of the $1.8 billion RPO at the end of fiscal 2023, we expect to recognize approximately 47% over the next 12 months, and the remainder thereafter. RPO is expected to increase as our subscription services business grows over time.
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Cost of Revenue and Gross Margin
 Fiscal Year EndedChangeFiscal Year EndedChange
 20212022$%20222023$%
 (in thousands)
Product cost of revenue$348,986 $471,565 $122,579 35 %$471,565 $559,548 $87,983 19 %
Product stock-based compensation4,001 6,334 2,333 58 %6,334 10,245 3,911 62 %
Total expenses$352,987 $477,899 $124,912 35 %$477,899 $569,793 $91,894 19 %
% of Product revenue31 %33 %33 %32 %
Subscription services cost of revenue$167,289 $209,190 $41,901 25 %$209,190 $263,365 $54,175 26 %
Subscription services stock-based compensation14,979 21,240 6,261 42 %21,240 22,630 1,390 7 %
Total expenses$182,268 $230,430 $48,162 26 %$230,430 $285,995 $55,565 24 %
% of Subscription services revenue34 %31 %31 %30 %
Total cost of revenue$535,255 $708,329 $173,074 32 %$708,329 $855,788 $147,459 21 %
% of Revenue32 %32 %32 %31 %
Product gross margin69 %67 %  67 %68 %  
Subscription services gross margin66 %69 %  69 %70 %  
Total gross margin68 %68 %  68 %69 %  
  Year Ended January 31, Change Year Ended January 31, Change
  2016 2017 $ % 2017 2018 $ %
  (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%
Product gross margin 64.6% 67.1%  
  
 67.1% 66.2%  
  
Support gross margin 45.8% 57.9%  
  
 57.9% 62.4%  
  
Total gross margin 61.9% 65.3%  
  
 65.3% 65.4%  
  
Cost of revenue increased by $101.5$147.5 million, or 40%21%, for the year ended January 31, 2018fiscal 2023 compared to the year ended January 31, 2017.fiscal 2022. The increase in product cost of revenue was primarily driven byattributable to increased sales and, to a lesser extent, by the increasedhigher component and logistics costs in our manufacturing operations associated with increased headcount.due to supply chain environment. The increase in supportsubscription services cost of revenue was primarily attributable to costssupporting our growing Evergreen subscription installed base, including Evergreen//One, and Portworx.
The slight increase 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.
Totalproduct gross margin remained relatively consistentfor fiscal 2023 compared to fiscal 2022 was largely as a result of sales of FlashArray//C to a large hyperscaler in fiscal 2022 that were at lower product gross margins. Sales of FlashArray//S as well as strength in FlashArray//X pricing also contributed to higher product gross margins during the years ended January 31, 2017fiscal 2023, partially offset by higher component costs due to supply chain constraints and 2018. Productwarranty reserves. The slight increase in subscription services gross margin decreased 0.9 percentage point from the year ended January 31, 2017for fiscal 2023 compared 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 primarilyfiscal 2022 was driven by increased recognitionsales of deferred support revenue resulting from the increaseEvergreen//One, higher renewals in our customer base, as well as efficiencies gained as we scale in our support organization globally.Evergreen subscriptions, and increasing economies of scale.
Cost of revenue increased by $84.4$173.1 million, or 50%32%, for the year ended January 31, 2017fiscal 2022 compared to the year ended January 31, 2016.fiscal 2021. The increase in product cost of revenue was primarily driven byattributable to increased product salessales. Other factors include higher component and logistics costs due to a lesser extent, bysupply chain environment, and an increase in the increased costs in our manufacturing operations, including increased personnel costs associated with increased headcount.amortization of acquired intangible assets. The increase in supportsubscription services cost of revenue was primarily attributable to supporting our growing Evergreen subscription installed base, including Evergreen//One, and Portworx.
The decline in product gross margin for fiscal 2022 compared to fiscal 2021 was impacted by the sale of FlashArray//C to a large hyperscaler, and to a lesser extent higher component and logistics costs from the continued growthdue to supply chain environment, as well as increased sales of FlashArray//C and FlashBlade products which generally have a modestly lower gross margin compared to our customer support organization. These costs are primarilyother FlashArray products. The increase in subscription services gross margin for fiscal 2022 compared to fiscal 2021 was driven by increased personnel costs associated with increased headcountsales of Evergreen//One and an increasehigher renewals in parts replacement associated with a higher numberEvergreen subscriptions, and increasing economies of maintenance and support agreements. Total headcount in these functions increased 34% from January 31, 2016 to January 31, 2017.scale.
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.
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Operating Expenses
Research and Development
 Fiscal Year EndedChangeFiscal Year EndedChange
 20212022$%20222023$%
 (in thousands)
Research and development$363,247 $439,671 $76,424 21 %$439,671 $530,834 $91,163 21 %
Stock-based compensation117,220 142,264 25,044 21 %142,264 161,694 19,430 14 %
Total expenses$480,467 $581,935 $101,468 21 %$581,935 $692,528 $110,593 19 %
% of Total revenue29 %27 %27 %25 %
 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$110.6 million, or 14%19%, during the year ended January 31, 2018fiscal 2023 compared to the year ended January 31, 2017,fiscal 2022, as we continuedcontinue to innovate and develop new technologies to enhance and enhanceexpand our current product offerings such as our FlashBlade and FlashArray//X products.solutions portfolio. The increase was primarily driven by a $29.3$79.6 million increase in employee compensation and related costs, includingwhich included a $7.7$19.4 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$20.6 million increase in depreciationoffice and equipmentfacilities-related costs and an $8.7 million increase in data center and cloud services costs. Research and development expense partially offset byas a $2.4 million decreasepercentage of total revenue decreased in prototypefiscal 2023 compared to fiscal 2022 primarily due to our global expansion of research and related expenses.development centers.
Research and development expense increased by $79.2$101.5 million, or 48%21%, during the year ended January 31, 2017fiscal 2022 compared to the year ended January 31, 2016, as we continued to develop new and enhanced product offerings such as our FlashBlade and FlashArray//M products. The increase wasfiscal 2021, primarily driven by ana $71.0 million increase of $63.9 million in salary and related costs, including an increase of $32.4 million in stock-based compensation expense, as headcount increased by 26% from January 31, 2016 to January 31, 2017. The remainder of the increase was primarily attributable to $11.6 million in depreciation expense mostly related to test equipment, $3.6 million in office and related costs and $2.8 million in professional services, partially offset by a decrease of $7.1 million in prototype expenses.
Sales and Marketing
 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 million, or 33%, during the year ended January 31, 2018 compared to the year ended January 31, 2017, as we continue to grow our sales force and expand international presence. The increase was primarily driven by an increase of $91.4 million in employee compensation and related costs, includingwhich included a $35.1 million increase in sales commission expense and a $13.4$25.0 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$14.2 million increase in marketingdata center and brand awareness programcloud services costs and a $7.1$9.3 million increase in officedepreciation expense from property and related costs.equipment due, in part, to revising our estimated useful lives of test equipment and certain computer equipment and software during the first quarter of fiscal 2021.

Sales and Marketing
 Fiscal Year EndedChangeFiscal Year EndedChange
 20212022$%20222023$%
 (in thousands)
Sales and marketing$650,766 $727,562 $76,796 12 %$727,562 $811,102 $83,540 11 %
Stock-based compensation65,248 71,439 6,191 9 %71,439 72,507 1,068 1 %
Total expenses$716,014 $799,001 $82,987 12 %$799,001 $883,609 $84,608 11 %
% of Total revenue43 %37 %37 %32 %
Sales and marketing expense increased by $119.5$84.6 million, or 50%11%, during the year ended January 31, 2017fiscal 2023 compared to fiscal 2022, primarily due to an increase of $51.0 million in employee compensation and related costs and a $34.0 million increase in marketing and travel spend. Sales and marketing expense as a percentage of total revenue decreased in fiscal 2023 compared to fiscal 2022 primarily due to revenue growth and, to a lesser extent, lower sales commissions.
Sales and marketing expense increased by $83.0 million, or 12%, during fiscal 2022 compared to fiscal 2021, primarily due to an increase of $62.7 million in employee compensation and related costs, which included a $24.7 million increase in sales commission expense, and a $14.3 million increase in marketing and travel spend due to the year ended January 31, 2016,gradual reduction in COVID-19 restrictions.
47

General and Administrative
 Fiscal Year EndedChangeFiscal Year EndedChange
 20212022$%20222023$%
 (in thousands)
General and administrative$141,581 $144,295 $2,714 2 %$144,295 $177,455 $33,160 23 %
Stock-based compensation40,896 45,686 4,790 12 %45,686 60,541 14,855 33 %
Total expenses$182,477 $189,981 $7,504 4 %$189,981 $237,996 $48,015 25 %
% of Total revenue11 %9 %9 %9 %
General and administrative expense increased by $48.0 million, or 25%, during fiscal 2023 compared to fiscal 2022 primarily due to employee compensation and related costs driven by increased headcount as we grewcontinue to scale and support the growth of our sales forcebusiness.
General and expanded our geographic footprint.administrative expense increased by $7.5 million, or 4%, during fiscal 2022 compared to fiscal 2021. The increase was primarily driven by an increase of $90.6 million in salary and related costs, including an increase of $31.0 million in sales commission expense and an increase of $17.4 million in stock-based compensation expense, as headcount increased by 30% from January 31, 2016 to January 31, 2017. 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$16.4 million in employee compensation and related costs including an increase of $8.5 million in stock-based compensation expense, as wedriven by increased our headcount, by 27% from January 31, 2017 to January 31, 2018. The increase was partially offset by a $8.2$8.5 million decrease in outside service expensesoffice and facilities-related costs primarily driven by lower legal fees incurredattributable to the exit of certain facilities in fiscal year 2018.2021.
GeneralRestructuring and administrative expense increased by $9.3Other
During fiscal 2021, we recognized $31.0 million or 12%, duringof restructuring and other costs related to one-time involuntary termination benefit costs associated with workforce realignment plans, the year ended January 31, 2017 comparedcease use of certain lease facilities, and incremental costs directly related 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 million increase in office and related costs and a $4.3 million increase in consulting costs as we grew our business operations globally. These increases were partially offset by a one-time non-cash charge of $11.9 million for an equity grant to the Pure Good Foundation in September 2015.
Legal Settlement

In October 2016, we incurred a one-time charge of $30.0 million 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.COVID-19 pandemic.
Other Income (Expense), Net
 Fiscal Year EndedChangeFiscal Year EndedChange
 20212022$20222023$
 (in thousands)
Other income (expense), net$(9,127)$(30,098)$(20,971)$(30,098)$8,295 $38,393 
% of Total revenue(1)%(1)%(1)%— %
 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

Other income (expense), net increased during the year ended January 31, 2018fiscal 2023 compared to fiscal 2022 primarily due to decrease in interest expense following the year ended January 31, 2017repayment of the outstanding balance on the revolving credit facility and the adoption of ASU 2020-06 in the first quarter of fiscal 2023. The adoption of ASU 2020-06 resulted in the elimination of the debt discount related to the conversion option of our convertible senior notes that was previously accreted to interest expense over its term. These decreases were partially offset by an increase in interest income on cash equivalents and marketable securities resulting from a rising interest rate environment.
We expect interest income to decline in fiscal 2024 year-over-year as a result of cash that will be used to repay our convertible senior notes in April 2023.
Other income (expense), net decreased during fiscal 2022 compared to fiscal 2021 primarily attributable to an $8.6 million increase in net gains from foreign currency transactionsexchange losses as the U.S. dollars weakeneddollar strengthened relative to certain foreign currencies, and a $1.2 million increasedecrease in interest income from our cash, cash equivalents and marketable securities.
Other income (expense), net increased during the year ended January 31, 2017 compared to the year ended January 31, 2016 primarily driven by an increase of $4.2 million in interest income earned on cash, cash equivalents and marketable securities partially offset byresulting from a $0.7 million increase in net losses from foreign currency transactions.lower interest rate environment, and higher interest expense due to borrowings under the revolving credit facility.

48


Provision for Income Taxes
 Fiscal Year EndedChangeFiscal Year EndedChange
 20212022$%20222023$%
 (in thousands)
Provision for income taxes$11,916 $14,763 $2,847 24 %$14,763 $18,737 $3,974 27 %
% of Total revenue1 %1 %1 %1 %
 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%
The provisionProvision for income taxes increased during the year ended January 31, 2018fiscal 2023 compared to the year ended January 31, 2017fiscal 2022 primarily relateddue to a $1.8 millionan increase in foreignU.S. state income taxes due to higher foreign profitsarising as a result of research and a reduction in excess tax benefits related to our foreign stock-based activities.development capitalization under IRC Section 174.
The provisionProvision for income taxes increased during the year ended January 31, 2017fiscal 2022 compared to the year ended January 31, 2016fiscal 2021 primarily relatedattributable to a $1.3 millionan increase in 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.

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, 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.
taxes.
49
 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)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.

(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.

 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 2023, we had cash, cash equivalents and marketable securities of $597.3 million.$1.6 billion. 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, asset-backed securities, and negative cash flows from operations in the near future and may require additional capital resources to execute strategic initiatives to grow our business.municipal bonds.


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.
We believe our existing cash, cash equivalents, and marketable securities and the revolving credit facility will be sufficient to fund our operating and capital needs for at least the next 12 months. months, including the cash settlement of the principal balance of our convertible senior notes in April 2023 as discussed below. The following table sets forth our non-cancelable contractual obligations and commitments associated with agreements that are enforceable and legally binding at the end of fiscal 2023. Obligations under contracts that we can cancel without a significant penalty are not included.
 Payment Due by Period
TotalLess Than
1 Year		1-3 Years3-5 YearsMore Than
5 Years
(in thousands)
Debt obligations (1)
$580,091 $577,363 $2,728 $— $— 
Future lease commitments (2)
238,297 51,059 93,570 44,991 48,677 
Purchase obligations (3)
445,048 317,846 98,100 29,102 — 
Total$1,263,436 $946,268 $194,398 $74,093 $48,677 

(1) Consists of (i) principal and interest payments on our convertible senior notes due April 2023, (ii) unused commitment fees on our August 2020 revolving credit facility based on rates in effect on February 5, 2023, and (iii) principal and interest on a five year loan.
(2) Represents aggregate future minimum lease payments under non-cancelable operating and finance leases.
(3) Includes primarily non-cancelable inventory purchase commitments, software service contracts, and hosting arrangements. Purchase orders are not included as they represent authorizations to purchase rather than binding agreements.
Our future capital requirements will depend on many factors including our sales growth, rate, the timing and extent of capital spending to support development efforts, the expansiongrowth of sales and marketing and international operation activities,our Evergreen//One offering, the addition or closure of office space, construction of our new headquarters facility, the timing of new product introductions, and the continuing market acceptance of our products and services.share repurchases. 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 patents for $1.0 million during the year ended January 31, 2017. We may be required to seek additional equity or debt financing. financing in the future.
Convertible Senior Notes
In April 2018, we issued $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 eventunderwriters' discounts and commissions. The Notes are unsecured obligations that additional financingdo 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 will mature on April 15, 2023. 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. On October 14, 2022, we provided notice to the holders of the Notes electing to settle all conversions of the Notes with cash up to the principal amount of the Notes and shares for any excess conversion value. Accordingly, we currently intend to settle the principal amount of the Notes, or $575.0 million, with cash from a combination of sources, including our existing cash, cash equivalents, marketable securities and the revolving credit facility.
In connection with the offering of the Notes, we entered into capped call transactions with certain financial institutions that provide us with the option to purchase up to a total of 21,884,155 shares of our common stock to offset the dilution and/or any cash payments we are required to make in excess of the principal amount of the Notes upon conversion of the Notes at maturity with such offset subject to a cap of $39.66 per share. See further discussion about our Notes in Note 7 in Part II, Item 8 of this report.
50

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 outside sources, wethe Credit 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. Ifthe 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. During March 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced that it will cease publication of LIBOR by June 2023. In March 2023, we amended the Credit Facility to transition LIBOR to the Secured Overnight Financing Rate (SOFR) effective April 1, 2023. The annual interest rate for SOFR borrowings will be equal to term SOFR (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%. We do not anticipate that this transition to SOFR will materially impact our liquidity or financial position.
In February 2022, we repaid, in full, the $250.0 million then outstanding under the Credit Facility. Loans under the Credit Facility are unablecollateralized by substantially all of our assets and subject to raise additional capital when desired, our business, operating resultscertain restrictions and two financial condition wouldratios measured as of the last day of each fiscal quarter: a Consolidated Leverage Ratio not to exceed 4.5:1 and an Interest Coverage Ratio not to be adversely affected.less than 3:1. We were in compliance with all covenants under the Credit Facility at the end of fiscal 2023.
AsLetters of January 31, 2017Credit
At the end of fiscal 2022 and 2018,2023, we had outstanding letters of credit in the aggregate amount of $7.7$6.7 million and $9.6$8.0 million in connection with our facility leases. The letters of credit are collateralized by either restricted cash or the Credit Facility and mature aton various dates through August 2026.September 2030.
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 and in February 2021, an additional $200.0 million of our common stock, both of which were completed by the end of fiscal 2022. In March 2018,2022, our Board of Directors authorized the repurchase of up to an additional $250.0 million of our common stock, of which $31.1 million remaining as of the end of fiscal 2023. In March 2023, our Board of Directors authorized the repurchase of up to an additional $250.0 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.
During fiscal 2021, we amended our Mountain View, California lease signed in August 2017 to add a ten-year leaserepurchased and retired 9.5 million shares of common stock at an average purchase price of $14.17 per share for an aggregate repurchase price of $135.0 million. During fiscal 2022, we repurchased and retired 8.5 million shares of common stock at an average purchase price of $23.56 per share for an aggregate repurchase price of $200.0 million. During fiscal 2023, we repurchased and retired 7.8 million shares of common stock at an average purchase price of $27.95 per share for an aggregate repurchase price of $218.9 million. Since the end of fiscal 2023, we have repurchased $31.1 million of additional 31,571 square feet of office space for a total rent obligation and management fees of approximately $34.8 million. In connection with this lease amendment, we issued a letter of credit of $1.5 million.shares.
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The following table summarizes our cash flows for the periods presented:presented (in thousands):
 Year Ended January 31,
 2016 2017 2018
 (in thousands)
Net cash provided by (used in) operating activities$(7,856) $(14,362) $72,756
Net cash used in investing activities(41,840) (447,223) (59,188)
Net cash provided by financing activities461,731
 40,518
 46,814
Fiscal Year Ended
202120222023
Net cash provided by operating activities$187,641 $410,127 $767,234 
Net cash used in investing activities(418,109)(153,283)(221,413)
Net cash provided by (used in) financing activities200,237 (127,792)(431,166)
Operating Activities
Net cash provided by operating activities substantially increased year-over-year during both fiscal 2022 and 2023. Key factors driving the year ended January 31, 2018 was $72.8 million, which resultedincrease included cash collections from net cash inflowssales of $35.9 million from changes inour product and subscription services and improved 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 liabilities was primarily the result of a $102.9 million increase in deferred revenue and $55.9 million increases in accounts payable and accrued compensation and other liabilities,leverage, 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, and prepaid expenses and other assets aregeneral corporate operating expenditures.
Net cash provided by operating activities during fiscal 2021 was primarily driven by increased activities to support overall business growth.
Net cash used in operating activities duringcollections from sales of our product and subscription services including certain invoices with extended payment terms and deferral of the year ended January 31, 2017 was $14.4 million which resulted from a net lossemployer portion of $245.1 million, including a $30.0 million one-time legal settlement payment,social security payroll tax under the CARES Act, 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. 


Net cash used ingeneral corporate 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).expenditures.
Investing Activities
Net cash used in investing activities during the year ended January 31, 2018fiscal 2023 of $59.2$221.4 million resulted fromwas driven by capital expenditures of $65.1$158.1 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 maturitiespurchases of marketable securities of $7.9$61.3 million.
Net cash used in investing activities during the year ended January 31, 2017fiscal 2022 of $447.2$153.3 million resulted fromwas driven by capital expenditures of $102.3 million, and net purchases of marketable securities of $363.9 million, capital expenditures of $76.8 million, an increase in restricted cash of $5.6 million related to a vendor credit card program and security deposit for office space, as well as the purchase of a portfolio of technology patents for $1.0$50.4 million.
Net cash used in investing activities during the year ended January 31, 2016fiscal 2021 of $41.8$418.1 million resulted primarily fromwas driven by net cash paid for our acquisition of Portworx of $339.6 million in October 2020, and capital expenditures of $39.4$95.0 million, and an increase in restricted cash related to security deposits for new office spacespartially offset by net sales of $2.5marketable securities of $21.5 million.
Financing Activities
Net cash provided byused in financing activities of $46.8$431.2 million during the year ended January 31, 2018fiscal 2023 was primarily due to $24.7driven by our repayment of the $250.0 million outstanding under the Credit Facility, share repurchases of proceeds from the exercise$219.1 million, and $19.6 million in tax withholdings on vesting of stock options and $22.1equity awards, partially offset by $40.0 million of proceeds from issuance of common stock under ESPP.
Net cash provided by financing activities of $40.5 million during the year ended January 31, 2017 was primarily due to $25.6 million of proceeds from issuance of commonour employee stock under ESPPpurchase plan (ESPP), and $14.9$24.8 million of proceeds from the exercise of stock options.
Net cash provided byused in financing activities of $461.7$127.8 million during the year ended January 31, 2016fiscal 2022 was primarily due to $459.4driven by share repurchases of $200.2 million, and $10.8 million in net proceeds from our IPO and $6.0tax withholdings on vesting of equity awards, partially offset by $48.7 million of proceeds from the exercise of stock options, and $36.6 million of proceeds from issuance of common stock under our ESPP.
Net cash provided by financing activities of $200.2 million during fiscal 2021 was primarily driven by $251.9 million of net proceeds from borrowings primarily under our Credit Facility, $59.3 million of proceeds from the exercise of stock options, and $32.4 million of proceeds from issuance of common stock under our ESPP, partially offset by paymentsshare repurchases of IPO costs$135.2 million and $8.3 million in tax withholdings on vesting of $3.7 million.equity awards.
Contractual Obligations and Commitments
The following table sets forth our non-cancellable contractual obligations as of January 31, 2018.
  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
Purchase orders are not included in the table above. Our purchase orders 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 March 2018, we amended our Mountain View, California lease signed in August 2017 to add a ten-year lease for an additional office space for a total rent obligation and management fees of approximately $34.8 million. In connection with this lease amendment, we issued a letter of credit of $1.5 million.
Off-Balance Sheet Arrangements
Through January 31, 2018,the end of fiscal 2023, 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.
52
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 PoliciesPolicy 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, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. A summary of significant accounting policies applicable to our consolidated financial statements is included in Note 2 of our Notes to Consolidated Financial Statements in Part II, Item 8. We deem an accounting policy to be critical if the nature of the estimate or assumption it incorporates is subject to material level of judgment related to matters that are highly uncertain and changes in those estimates and assumptions are reasonably likely to materially impact our consolidated financial statements.
We evaluate our estimates and assumptions on an ongoing basis. Our estimates and judgments are based on historical experience, forecasted events and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
The criticalWe believe the accounting estimates, assumptions and judgments that we believe havepolicy below has the most significant impact on our consolidated financial statements are described below.and require management's most difficult, subjective, or complex judgments.
Revenue Recognition
We derive revenue from two sources: (1) product revenue which includes hardware and embedded software and (2) support revenue which includes customer support, hardware maintenance and software upgrades on a when-and-if-available basis.
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 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.
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 salesales of our integrated storage hardware and operating systemembedded licensed software products and subscription services which also includes support and maintenance and professional services. We enter into contracts with customers that may include combinations of these products and subscription services, resulting in arrangements containing multiple promised performance obligations.
Determining whether our products and subscription services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. For these contracts, we account for individual performance obligations separately if they are distinct.
Revenue is integrated intorecognized when, or as, control of the hardware and therefore deemed essential to its functionality. The hardware and the operating system software essentialpromised products or subscription services is transferred 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 enhancements on a when-and-if-available basis, bug fixes, parts replacement services related to the hardware, as well as access to our cloud-based management and support platform. Revenue 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 and the related cost is expensed 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 considerationcustomer at the inception of an arrangement to all deliverables based on the relative sellingtransaction price. The transaction 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. TPE is determined based on competitor pricesthe consideration which we will be entitled to in exchange for interchangeabletransferring goods or services to the customer. Transaction price may be adjusted for variable consideration which we estimate by applying the expected value or most likely estimate and subsequently update at each reporting period as additional information become available.
To recognize revenue for the products and subscription services for which control has been transferred, we allocate the transaction price for the contract among the identified performance obligations on a relative standalone selling price (SSP) basis. We establish SSP for most of our products and subscription services based on the observable price of the products or subscription services when sold separately in similar circumstances to similarly situatedsimilar customers. However, becauseWhen the SSP is not directly observable through historical transactions, we estimate SSP based on management judgment by considering available data, such as internal margin objectives, pricing strategies, approved pricing guidelines, market/competitive conditions, historical profitability data, as well as other observable inputs. We establish SSP ranges for our products contain a significant element of proprietary technology and our solutions offer substantially different featuressubscription services and functionality, the comparable pricing of products with similar functionality typically cannot be obtained.
reassess them periodically.
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 our BESP for products and services 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 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 recognized from the related customer contract. Amortization of deferred commissions is included in sales and marketing expense in the consolidated statements of operations.
Stock-Based Compensation
We measure and recognize compensation expense for all stock-based awards granted to our employees, including restricted stock units (RSUs), stock options and purchase rights granted under our 2015 ESPP, based on the estimated fair value of the award on the grant date. We use the Black-Scholes option pricing model to estimate the fair 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.


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.

53

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 2022 and 2018,2023, we had cash, cash equivalents and marketable securities of $546.7 million$1.4 billion and $597.3 million.$1.6 billion. 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$8.5 million as of January 31, 2018.the end of fiscal 2023.
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, Euro and Euro.Yen. 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 2023 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$9.0 million asat the end of January 31, 2018.

fiscal 2023.

54

Item 8. Financial Statements and Supplementary Data.
PURE STORAGE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
5156
5359
5460
5561
5662
5763
5864




55

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 January 31, 2017February 6, 2022 and 2018,February 5, 2023, and the related consolidated statements of operations, comprehensive loss, convertible preferred stock andincome (loss), stockholders' equity, (deficit), and cash flows, for each of the three years in the period ended February 5, 2023, February 6, 2022, and 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 January 31, 2017February 6, 2022 and 2018,February 5, 2023, and the results of its operations and its cash flows for each of the three years in the period ended February 5, 2023, February 6, 2022, and 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,February 5, 2023, 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, 2018,31, 2023 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.
56

Revenue Recognition—Determination of Standalone Selling Prices — Refer to Note 2 of the Financial Statements.
Critical Audit Matter Description
The Company generates revenue from product revenue and subscription services revenue. For contracts that contain multiple performance obligations, the Company allocates 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. The determination of the standalone selling price requires management to make significant estimates and judgments related to market conditions and pricing guidelines.
We identified the determination of standalone selling price as a critical audit matter because of the significant judgments made by management in estimating standalone selling price when the price at which the performance obligation sold separately is not available. This required a high degree of auditor judgment and an increased extent of effort to perform qualitative evaluations of the audit evidence related to management’s determination of the standalone selling price.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to standalone selling price included the following, among others:
•We tested the effectiveness of controls over the Company's methodology and determination of standalone selling price.
•We evaluated the appropriateness of the Company's methodology used to determine standalone selling price by comparing to historical analysis completed by the Company and practices observed in the industry.
•We tested the underlying data that served as the basis for the Company's analysis and the mathematical accuracy of such analysis and verified the consistent application of the methodology of establishing standalone selling price.
•We evaluated the reasonableness of the Company's overall conclusion of standalone selling price.
•We tested the allocation of the transaction price among performance obligations based on relative standalone selling price.

/S/ DELOITTEs/ Deloitte & TOUCHETouche LLP
San Jose, California
March 26, 201831, 2023


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



57


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,February 5, 2023, 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,February 5, 2023, 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,February 5, 2023, of the Company and our report dated March 26, 201831, 2023, 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, 201831, 2023

58



PURE STORAGE, INC.
Consolidated Balance Sheets
(in thousands, except per share data)
 At the End of Fiscal
 20222023
ASSETS  
Current assets:  
Cash and cash equivalents$466,199 $580,854 
Marketable securities947,073 1,001,352 
Accounts receivable, net of allowance of $945 and $1,057542,144 612,491 
Inventory38,942 50,152 
Deferred commissions, current81,589 68,617 
Prepaid expenses and other current assets116,232 161,391 
Total current assets2,192,179 2,474,857 
Property and equipment, net195,282 272,445 
Operating lease right-of-use assets111,763 158,912 
Deferred commissions, non-current164,718 177,239 
Intangible assets, net62,646 49,222 
Goodwill358,736 361,427 
Restricted cash10,544 10,544 
Other assets, non-current39,447 38,814 
Total assets$3,135,315 $3,543,460 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$70,704 $67,121 
Accrued compensation and benefits205,431 232,636 
Accrued expenses and other liabilities78,511 123,749 
Operating lease liabilities, current35,098 33,707 
Deferred revenue, current562,576 718,149 
Debt, current— 574,506 
Total current liabilities952,320 1,749,868 
Long-term debt786,779 — 
Operating lease liabilities, non-current93,479 142,473 
Deferred revenue, non-current517,296 667,501 
Other liabilities, non-current31,105 42,385 
Total liabilities2,380,979 2,602,227 
Commitments and contingencies (Note 8)
Stockholders’ equity:  
Preferred stock, par value of $0.0001 per share— 20,000 shares authorized; no shares issued and outstanding— — 
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; 292,633 and 304,076 Class A shares issued and outstanding29 30 
Additional paid-in capital2,470,943 2,493,769 
Accumulated other comprehensive loss(8,365)(15,504)
Accumulated deficit(1,708,271)(1,537,062)
Total stockholders’ equity754,336 941,233 
Total liabilities and stockholders’ equity$3,135,315 $3,543,460 
 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.

59


PURE STORAGE, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
 Year Ended January 31,
 2016 2017 2018
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: 
  
  
Product132,870
 194,150
 275,242
Support35,023
 58,129
 78,539
Total cost of revenue167,893
 252,279
 353,781
Gross profit272,440
 475,698
 669,238
Operating expenses: 
  
  
Research and development166,645
 245,817
 279,196
Sales and marketing240,574
 360,035
 480,030
General and administrative75,402
 84,652
 95,170
Legal settlement—
 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) $(177,602)
Net loss per share attributable to common stockholders, basic and diluted$(2.59) $(1.26) $(0.84)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted82,460
 194,714
 211,609
Fiscal Year Ended
202120222023
Revenue:   
Product$1,144,098 $1,442,338 $1,792,153 
Subscription services540,081 738,510 961,281 
Total revenue1,684,179 2,180,848 2,753,434 
Cost of revenue: 
Product352,987 477,899 569,793 
Subscription services182,268 230,430 285,995 
Total cost of revenue535,255 708,329 855,788 
Gross profit1,148,924 1,472,519 1,897,646 
Operating expenses: 
Research and development480,467 581,935 692,528 
Sales and marketing716,014 799,001 883,609 
General and administrative182,477 189,981 237,996 
Restructuring and other30,999 — — 
Total operating expenses1,409,957 1,570,917 1,814,133 
Income (loss) from operations(261,033)(98,398)83,513 
Other income (expense), net(9,127)(30,098)8,295 
Income (loss) before provision for income taxes(270,160)(128,496)91,808 
Provision for income taxes11,916 14,763 18,737 
Net income (loss)$(282,076)$(143,259)$73,071 
Net income (loss) per share attributable to common stockholders, basic$(1.05)$(0.50)$0.24 
Net income (loss) per share attributable to common stockholders, diluted$(1.05)$(0.50)$0.23 
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders, basic267,824 285,882 299,478 
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders, diluted267,824 285,882 339,184 
 
See the accompanying notes to the consolidated financial statements.

60

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

Fiscal Year Ended
202120222023
Net income (loss)$(282,076)$(143,259)$73,071 
Other comprehensive income (loss), net of tax:
Unrealized net gains (losses) on available-for-sale securities3,213 (15,107)(7,108)
Reclassification adjustment for net gains on available-for-sale securities included in net income (loss)(1,252)(668)(31)
Change in unrealized net gains (losses) on available-for-sale securities1,961 (15,775)(7,139)
Comprehensive income (loss)$(280,115)$(159,034)$65,932 
 Year Ended January 31,
 2016 2017 2018
Net loss$(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.




61

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 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)— — — 
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 
Issuance of common stock upon exercise of stock options5,955 — 48,543 — — 48,543 
Stock-based compensation expense— — 289,185 — — 289,185 
Vesting of restricted stock units12,955 1 (1)— — — 
Cancellation and forfeiture of restricted stock(62)— — — — — 
Tax withholding on vesting of equity awards(454)— (10,835)— — (10,835)
Common stock issued under employee stock purchase plan4,365 — 36,641 — — 36,641 
Repurchases of common stock(8,489)— (200,170)— — (200,170)
Other comprehensive loss— — — (15,775)— (15,775)
Net loss— — — — (143,259)(143,259)
Balance at the end of fiscal 2022292,633 $29 $2,470,943 $(8,365)$(1,708,271)$754,336 
Cumulative-effect adjustment from adoption of ASU 2020-06
— — (133,265)— 98,138 (35,127)
Issuance of common stock upon exercise of stock options2,988 — 25,073 — — 25,073 
Stock-based compensation expense— — 329,723 — — 329,723 
Vesting of restricted stock units13,916 1 (1)— — — 
Tax withholding on vesting of equity awards(643)— (19,601)— — (19,601)
Common stock issued under employee stock purchase plan3,014 — 39,965 — — 39,966 
Repurchases of common stock(7,832)— (219,068)— — (219,069)
Other comprehensive loss— — — (7,139)— (7,139)
Net income— — — — 73,071 73,071 
Balance at the end of fiscal 2023304,076 $30 $2,493,769 $(15,504)$(1,537,062)$941,233 
 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.

62


PURE STORAGE, INC.
Consolidated Statements of Cash Flows
(in thousands)
 Fiscal Year Ended
 202120222023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)$(282,076)$(143,259)$73,071 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Depreciation and amortization70,042 83,151 100,432 
Amortization of debt discount and debt issuance costs29,070 31,577 3,210 
Stock-based compensation expense242,344 286,963 327,617 
 Impairment of long-lived assets7,505 471 — 
Other7,340 13,075 4,145 
Changes in operating assets and liabilities, net of effects of acquisitions:  
Accounts receivable, net410 (81,247)(70,724)
Inventory(8,690)4,118 (10,619)
Deferred commissions(48,721)(58,383)451 
Prepaid expenses and other assets(33,982)(25,788)(31,580)
Operating lease right-of-use assets28,804 29,952 33,813 
Accounts payable(14,364)6,711 (7,075)
Accrued compensation and other liabilities76,972 58,961 72,084 
Operating lease liabilities(27,318)(32,351)(33,359)
Deferred revenue140,305 236,176 305,768 
Net cash provided by operating activities187,641 410,127 767,234 
CASH FLOWS FROM INVESTING ACTIVITIES   
Purchases of property and equipment(94,975)(102,287)(158,139)
Acquisitions, net of cash acquired(339,641)— (1,989)
Purchases of marketable securities(573,959)(617,043)(501,435)
Sales of marketable securities171,530 200,482 6,155 
Maturities of marketable securities423,936 366,165 433,995 
Other(5,000)(600)— 
Net cash used in investing activities(418,109)(153,283)(221,413)
CASH FLOWS FROM FINANCING ACTIVITIES   
Net proceeds from exercise of stock options59,339 48,709 24,778 
Proceeds from issuance of common stock under employee stock purchase plan32,439 36,641 39,965 
Proceeds from borrowings, net of issuance costs251,892 — — 
Principal payments on borrowings and finance lease obligations— (2,137)(257,240)
Tax withholding on vesting of equity awards(8,258)(10,835)(19,601)
Repurchases of common stock(135,175)(200,170)(219,068)
Net cash provided by (used in) financing activities200,237 (127,792)(431,166)
Net increase (decrease) in cash, cash equivalents and restricted cash(30,231)129,052 114,655 
Cash, cash equivalents and restricted cash, beginning of year377,922 347,691 476,743 
Cash, cash equivalents and restricted cash, end of year$347,691 $476,743 $591,398 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR
Cash and cash equivalents$337,147 $466,199 $580,854 
Restricted cash$10,544 $10,544 $10,544 
Cash, cash equivalents and restricted cash, end of year$347,691 $476,743 $591,398 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION  
Cash paid for interest$2,279 $5,019 $1,185 
Cash paid for income taxes$10,522 $12,662 $14,391 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION   
Property and equipment purchased but not yet paid$10,979 $7,441 $14,902 
Fair value of equity awards assumed in an acquisition$8,802 $— $— 
 Year Ended January 31,
 2016 2017 2018
CASH FLOWS FROM OPERATING ACTIVITIES     
Net loss$(213,752) $(245,066) $(177,602)
Adjustments to reconcile net loss to net cash used in operating activities: 
  
  
Depreciation and amortization32,254
 50,203
 61,744
Stock-based compensation expense58,225
 116,668
 150,673
Contribution of common stock to the Pure Good Foundation11,900
 —
 —
Other(1,093) 1,584
 2,054
Changes in operating assets and liabilities: 
  
  
Accounts receivable, net(67,292) (44,049) (74,505)
Inventory1,481
 (3,776) (12,595)
Deferred commissions(13,021) (740) (11,997)
Prepaid expenses and other assets(8,704) (6,133) (23,799)
Accounts payable24,901
 10,644
 29,278
Accrued compensation and other liabilities24,710
 19,381
 26,622
Deferred revenue142,535
 86,922
 102,883
Net cash provided by (used in) operating activities(7,856) (14,362) 72,756
CASH FLOWS FROM INVESTING ACTIVITIES 
  
  
Purchases of property and equipment(39,355) (76,773) (65,060)
Purchase of intangible assets—
 (1,000) —
Purchases of marketable securities—
 (526,717) (202,656)
Sales of marketable securities—
 114,354
 66,489
Maturities of marketable securities—
 48,513
 144,068
Net increase in restricted cash(2,485) (5,600) (2,029)
Net cash used in investing activities(41,840) (447,223) (59,188)
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
Proceeds from issuance of common stock under employee stock purchase plan—
 25,606
 22,137
Payments of deferred offering costs(3,702) —
 —
Net cash provided by financing activities461,731
 40,518
 46,814
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
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION 
  
  
Cash paid for income taxes$1,118
 $2,866
 $3,090
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
Vesting of early exercised stock options$1,725
 $3,399
 $1,042
Unpaid deferred offering costs$546
 $—
 $—

See the accompanying notes to the consolidated financial statements.

63



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 Offering
In October 2015, we completed our initial public offering (IPO) of Class A common stock, in which we sold 28,750,000 shares. The shares were sold at an 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
Basis of Presentation and Principles of Consolidation
We operate using a 52/53 week fiscal year ending on the first Sunday after January 30. Fiscal 2021 and 2023 were both 52-week years that ended on January 31, 2021 and February 5, 2023, respectively. Fiscal 2022 was a 53-week year that ended on February 6, 2022. Unless otherwise stated, all dates refer to our fiscal years.
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.
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. 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 when the price at which the performance obligation sold separately or observable past transactions are not available, 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.
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 2022 and 2018, substantially all2023, the majority of our cash and cash equivalents have beenare primarily invested with threetwo global financial institutions and suchour deposits exceed federally insured limits. These two global financial institutions were identified by the Financial Stability Board in 2022 as being global systemically important banks and are allocated to buckets 2 or higher. Our investments are intended to facilitate liquidity and capital preservation and consist predominantly of highly-rated fixed income securities. Our investment policy also requires diversification of investment type and credit exposures, and includes certain limits on portfolio duration. Management believes that the financial institutions that hold our investmentscash, cash equivalents and marketable securities are financially sound and, accordingly, are subject to minimal credit risk.
64

We define a customer as an end userentity that purchases our products and services from one of our channel partners or from us directly. OurA substantial amount of our revenue and accounts receivable are derived substantially from the United States across a multitude of industries. We perform ongoing evaluations to determine partner and customer credit. As of January 31,


2017, we had oneOne channel partner that represented 10%10 percent or more of total accounts receivable on that date. Asat the end of January 31, 2018, nofiscal 2022. No customer or channel partner represented 10%10 percent or more of total accounts receivable on that date. No single channel partner represented 10%at the end of fiscal 2023 or more than 10 percent of revenue for the years ended January 31, 2016 and 2018. One channel partner represented 11% of revenue for the year ended January 31, 2017. No end customer represented 10%fiscal 2021, 2022 or more of revenue for the years ended January 31, 2016, 2017 and 2018. 2023.
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 and U.S. government treasury notes, 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 partners and 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.
65

The following table presents the changes in the allowance for doubtful accounts:
Fiscal Year Ended
Year Ended January 31, 202120222023
2016 2017 2018
(in thousands)  (in thousands) 
Allowance for doubtful accounts, beginning balance$210
 $944
 $2,000
Allowance for doubtful accounts, beginning balance$542 $1,033 $945 
Provision, net918
 1,394
 482
Writeoffs(184) (338) (1,420)
Provision, net of cash receivedProvision, net of cash received496 (18)377 
Write-offsWrite-offs(5)(70)(265)
Allowance for doubtful accounts, ending balance$944
 $2,000
 $1,062
Allowance for doubtful accounts, ending balance$1,033 $945 $1,057 
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 2022 and 2018,2023, we had restricted cash of $12.7 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. As of January 31, 2018, we did not record any liability related to the above. Inventory write-offs were insignificant for the years ended January 31, 2016, 2017fiscal 2021, 2022 and 2018.2023.
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—24 to 35 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.
66

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.
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
Convertible Senior Notes
Prior to the adoption of Accounting Standards Update (ASU) 2020-06 on February 7, 2022, in anyaccounting 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 debt instrument 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. This difference represented a debt discount that was amortized to interest expense using the effective interest method over the term of the Notes. The equity component of the Notes was included in additional paid-in capital in the consolidated financial statements.balance sheets and was not remeasured as it continued to meet the conditions for equity classification. Transaction costs related to the issuance of the Notes (debt issuance costs) were allocated to the liability and equity components using the same proportions as the initial carrying value of the Notes. The debt issuance costs attributable to the liability component were netted with the principal amount of the Notes and amortized to interest expense using the effective interest method over the term of the Notes. The debt issuance costs attributable to the equity component were netted with the equity component of the Notes in additional paid-in capital.
Upon adoption of ASU 2020-06, we combined the liability and equity components assuming that the instrument was accounted for as a single liability from inception to the date of adoption, resulting in the elimination of the debt discount. Similarly, the liability and equity components of the debt issuance costs were combined as a reduction to the Notes and is being amortized to interest expense using the effective interest method over the remaining term of the Notes.
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
67

Leases
We determine if an arrangement contains a lease at inception and classify leases as an operating or finance lease at commencement date. Lease liabilities are recognized at the present value of January 31, 2017the future lease payments at commencement date. The interest rate implicit in our operating and 2018,finance leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future payments. The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments. The lease right-of-use (ROU) asset is determined based on the lease liability initially established and reduced for any prepaid lease payments and any lease incentives. We account for the lease and non-lease components of operating and finance 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 under our operating leases is recognized on a straight-line basis over the lease term commencing on the date we recorded deferred commissions, current,have the right to use the leased property. For finance leases, we recognize amortization expense of $15.8 millionthe finance lease ROU asset on a straight-line basis over the shorter of its useful life or lease term and $22.4 million,record interest expense for finance lease liabilities based on the incremental borrowing rate. We generally use the base, non-cancelable, lease term when recognizing the lease assets and deferred commissions, non-current, of $14.9 millionliabilities, unless it is reasonably certain that an extension or termination option will be exercised. Assets recognized and $20.3 million, withinthe short and long-term lease liabilities from finance leases are included in property and equipment, net, accrued expenses and other assets,liabilities and other liabilities, non-current in the consolidated balance sheets. During
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 years ended January 31, 2016, 2017lease term.
For short-term leases (defined as leases that, at the commencement date, have a lease term of twelve months or less, and 2018,do not include an option to purchase the underlying asset that we recognized sales commission expensesare reasonably certain to exercise), we recognize rent expense in our consolidated statements of $47.2 million, $84.8 million, and $119.8 million, respectively.


Revenue Recognition
We derive revenue from two sources: (1) product revenue which includes hardware and embedded software and (2) support revenue which includes customer support, hardware maintenance and software upgradesoperations 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 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.
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 enhancements on a when-and-if-availablestraight-line basis bug fixes, parts replacement services related to the hardware, as well as access to our cloud-based management and support platform. Revenue related to maintenance and support agreements are recognized ratably over the contractuallease term which generally range from one to five years. Costs related to maintenance and support agreements are expensedrecord variable lease payments 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. TPE is determined based on competitor prices for interchangeable products or services when sold separately to similarly situated customers. However, because our products contain a significant element of proprietary technology 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 such as customer demographics, costs to manufacture products or provide support, pricing practices and market conditions.


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 two sources: (1) product revenue which includes the sale of integrated storage hardware and embedded licensed operating system software and (2) subscription services revenue which includes our portfolio of Evergreen offerings and Portworx. Subscription services revenue also include our professional services offerings such as installation and implementation consulting services.
We typically recognize product revenue upon transfer of control to our customers and the satisfaction of our performance obligations. For Evergreen//Flex, product revenue is recognized upon the commencement of the underlying subscription services. 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 subscription services 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 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 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 subscription service agreement and the allocated revenue is recognized upon shipment of the controller.
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Our Evergreen 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.
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 (SSP). The SSP 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 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 maintenanceEvergreen subscription agreements. We will establish a warranty reserve for specifically identified products if and support agreements.
Therefore, given that substantially all our products sales are sold together with maintenance and support agreements,when we generally do notdetermine we have exposuresystemic product failure. Our estimate for future estimated costs related to warranty activities is based upon historical product failure rates and historical costs and no warrantyincurred in correcting product failures. Warranty reserve has been recorded.at the end of fiscal 2023 was $7.4 million.
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, data center and cloud services 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 our hosted applications incurredpreliminary project activities and post implementation activities are expensed as incurred.
Software development costs are capitalized to date have been insignificantproperty, plant and as a result noequipment and amortized using the straight-line method over an estimated useful life of four years. Software development costs capitalized to property and equipment were $7.8 million and $7.3 million for fiscal 2022 and 2023. Amortization expense for software development costs was none during fiscal 2021 and 2022 and $2.2 million during fiscal 2023.
Software implementation costs are capitalized to either prepaid and other current assets or other assets, non-current on our consolidated balance sheet and amortized over the terms of the associated hosting arrangements. Software implementation costs capitalized were capitalized$3.5 million and $9.3 million for fiscal 2022 and 2023. Amortization expense for software implementation costs was $0.1 million, $0.5 million and $1.5 million during the years ended January 31, 2016, 2017fiscal 2021, 2022 and 2018.2023.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expenses were $6.2$8.1 million, $10.7$15.3 million and $10.3$11.1 million for the years ended January 31, 2016, 2017fiscal 2021, 2022 and 2018, respectively.2023.
Stock-Based Compensation
Stock-based compensation includes expenses related to restricted stock units (RSUs), performance restricted stock units (PRSUs), restricted stock, stock options and purchase rights issued to employees under our ESPP.employee stock purchase plan (ESPP). RSUs, PRSUs 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 with only service conditions 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
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Recently Adopted Accounting PronouncementsPronouncement
In May 2014,August 2020, the FASB issued ASU No. 2014-09, Revenue from2020-06, Accounting for Convertible Instruments and Contracts with Customers (ASU 2014-09 or ASC 606), requiring an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflectsEntity's Own Equity, which simplifies the considerationaccounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity's own equity, and requires the use of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS) which results in 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 methodsinclusion of adoptions: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of applying theshare settlement for instruments that may be settled in cash or shares. We adopted this standard recognized at the dateas of application (cumulative catch-up transition method).
We have adopted the standardFebruary 7, 2022 using the fullmodified retrospective method beginning February 1, 2018, forbasis, under which financial results reported in prior periods were not adjusted. Adoption resulted in an adjustment of $133.3 million to reclassify the year ending January 31, 2019, and our historical financial information forremaining balance of the years ended January 31, 2017 and 2018 will be restated to conformconversion feature recorded in additional paid-in capital to the new standard. TheNotes of $35.2 million and accumulated deficit of $98.1 million on the consolidated balance sheet. Accordingly, we no longer carry an equity component of the Notes. For further information, see Note 7, Debt, and Note 13, Net Income (Loss) per Share Attributable to Common Stockholders.
Recent Accounting Pronouncements
There are no recently issued accounting pronouncements that are expected to have material impact on our consolidated financial statements upon the adoption of the standard is primarily as follows:and accompanying disclosures.

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An increase in total revenue of $11.2 million and $1.8 million for the years ended January 31, 2017 and 2018 (an increase in product revenue of $24.5 million and $20.5 million 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 million as of January 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. We are currently evaluating the impact of this standard on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15 (Topic 230) Statement of Cash Flow: Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments 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), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 will be effective for us beginning on February 1, 2018 and will be applied on a modified retrospective basis. Early adoption is permitted. We do not expect the adoption of this standard 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 changes as a result of the change in terms or conditions. This standard will be effective for us beginning February 1, 2018 and will be applied on a prospective 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. 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.



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 2022 and 20182023 (in thousands):
 At the End of Fiscal 2022
 Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueCash EquivalentsMarketable SecuritiesRestricted Cash
Level 1    
Money market accounts$— $— $— $29,275 $18,731 $— $10,544 
Level 2    
U.S. government treasury notes336,303 512 (2,176)334,639 — 334,639 — 
U.S. government agencies49,153 49 (193)49,009 — 49,009 — 
Corporate debt securities491,728 384 (4,731)487,381 200 487,181 — 
Foreign government bonds12,333 37 (17)12,353 — 12,353 — 
Asset-backed securities60,361 111 (453)60,019 — 60,019 — 
Municipal bonds3,950 — (78)3,872 — 3,872 — 
       Total$953,828 $1,093 $(7,648)$976,548 $18,931 $947,073 $10,544 
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 January 31, 2017
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash Equivalents Marketable Securities Restricted Cash
Level 1 
  
  
  
      
Money market accounts$—
 $—
 $—
 $12,734
 $—
 $—
 $12,734
Level 2 
  
  
  
      
U.S. government treasury notes148,298
 22
 (289) 148,031
 13,226
 134,805
 —
U.S. government agencies40,398
 2
 (159) 40,241
 —
 40,241
 —
Corporate debt securities185,701
 242
 (379) 185,564
 —
 185,564
 —
Foreign government bonds2,377
 2
 (3) 2,376
 —
 2,376
 —
       Total$376,774
 $268
 $(830) $388,946
 $13,226
 $362,986
 $12,734


January 31, 2018 At the End of Fiscal 2023
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
 $—
 $14,763
Money market accounts$— $— $— $49,733 $39,189 $— $10,544 
Level 2             Level 2
U.S. government treasury notes131,643
 —
 (651) 130,992
 10,172
 120,820
 —
U.S. government treasury notes425,977 170 (4,229)421,918 32,008 389,910 — 
U.S. government agencies47,229
 —
 (333) 46,896
 —
 46,896
 —
U.S. government agencies23,795 — (289)23,506 — 23,506 — 
Corporate debt securities186,506
 116
 (1,049) 185,573
 —
 185,573
 —
Corporate debt securities527,164 901 (9,300)518,765 — 518,765 — 
Foreign government bondsForeign government bonds4,797 — (44)4,753 — 4,753 — 
Asset-backed securitiesAsset-backed securities61,371 281 (1,016)60,636 — 60,636 — 
Municipal bondsMunicipal bonds3,950 — (168)3,782 — 3,782 — 
Total$365,378
 $116
 $(2,033) $395,518
 $27,466
 $353,289
 $14,763
Total$1,047,054 $1,352 $(15,046)$1,083,093 $71,197 $1,001,352 $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 2023
 Amortized CostFair Value
Due within one year$542,675 $537,272 
Due in one to five years468,427 460,091 
Due in five to ten years3,944 3,989 
  Total$1,015,046 $1,001,352 
 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 ashave 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 January 31, 2018their amortized cost basis. The decline in fair value of our debt securities is largely due to the rising interest rate environment driven by current market conditions that has resulted in higher credit spreads. 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 were temporaryno credit or non-credit impairment charges recorded in nature.fiscal 2021, 2022, and 2023. 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 2022 and 2023, aggregated by investment category (in thousands):

At the End of Fiscal 2022
Less than 12 monthsGreater than 12 monthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
U.S. government treasury notes$193,359 $(2,176)$— $— $193,359 $(2,176)
U.S. government agencies24,388 (193)— — 24,388 (193)
Corporate debt securities374,223 (4,708)1,182 (23)375,405 (4,731)
Foreign government bonds4,098 (17)— — 4,098 (17)
Asset-backed securities37,608 (453)— — 37,608 (453)
Municipal bonds3,872 (78)— — 3,872 (78)
Total$637,548 $(7,625)$1,182 $(23)$638,730 $(7,648)

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At the End of Fiscal 2023
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$250,046 $(130)$127,976 $(4,099)$378,022 $(4,229)
U.S. government agencies23,004
 (156) 23,892
 (177) 46,896
 (333)U.S. government agencies5,194 (5)18,312 (284)23,506 (289)
Corporate debt securities117,165
 (732) 33,132
 (317) 150,297
 (1,049)Corporate debt securities99,446 (330)277,717 (8,970)377,163 (9,300)
Foreign government bondsForeign government bonds3,200 (5)551 (39)3,751 (44)
Asset-backed securitiesAsset-backed securities3,060 (25)22,221 (991)25,281 (1,016)
Municipal bondsMunicipal bonds— — 3,782 (168)3,782 (168)
Total$208,381
 $(1,107) $109,631
 $(926) $318,012
 $(2,033) Total$360,946 $(495)$450,559 $(14,551)$811,505 $(15,046)

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 2022 and 2023 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 2022 and 2023.
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Note 4. Business Combination
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 applications. 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 1.9 million 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 2.0 million RSUs outstanding 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 was 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 was not 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 were 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 zero 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 remaining unpaid amount was $4.9 million at the end of fiscal 2023.

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 was not material to our results of operations.
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Note 4.5. Balance Sheet Components
Inventory
Inventory consists of the following (in thousands):
 January 31,
 2017 2018
Raw materials$3,003
 $1,181
Finished goods20,495
 33,316
Inventory$23,498
 $34,497



At the End of Fiscal
20222023
Raw materials$15,734 $24,896 
Finished goods23,208 25,256 
Inventory$38,942 $50,152 
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
 January 31,
 2017 2018
Test equipment$105,955
 $142,311
Computer equipment and software54,521
 72,329
Furniture and fixtures4,494
 5,363
Leasehold improvements10,332
 15,032
Total property and equipment175,302
 235,035
Less: accumulated depreciation and amortization(93,607) (145,893)
Property and equipment, net$81,695
 $89,142
 At the End of Fiscal
 20222023
Test equipment$266,672 $315,290 
Computer equipment and software206,053 262,574 
Furniture and fixtures8,652 9,693 
Leasehold improvements47,443 71,235 
Capitalized software development costs8,528 15,806 
Total property and equipment537,348 674,598 
Less: accumulated depreciation and amortization(342,066)(402,153)
Property and equipment, net$195,282 $272,445 
Depreciation and amortization expense related to property and equipment was $31.0$57.1 million, $48.8$65.9 million and $60.2$87.0 million for the years ended January 31, 2016, 2017fiscal 2021, 2022 and 2018,2023, respectively.
Intangible Assets, Net
Intangible assets, net consist of the following (in thousands):
 January 31,
 2017 2018
Technology patents$10,125
 $10,125
Accumulated amortization(3,565) (5,068)
Intangible assets, net$6,560
 $5,057
At the End of Fiscal
 20222023
 Gross Carrying ValueAccumulated AmortizationNet Carrying AmountGross Carrying ValueAccumulated AmortizationNet Carrying Amount
Technology patents$19,125 $(13,544)$5,581 $19,125 $(14,826)$4,299 
Developed technology80,166 (30,304)49,862 83,211 (43,366)39,845 
Customer relationships6,459 (1,246)5,213 6,459 (2,166)4,293 
Trade name3,623 (1,633)1,990 3,623 (2,838)785 
Intangible assets, net$109,373 $(46,727)$62,646 $112,418 $(63,196)$49,222 
Intangible assets amortization expense was $1.3$13.0 million, $1.4$16.8 million and $1.5$16.5 million for fiscal 2021, 2022 and 2023, respectively. At the years ended January 31, 2016, 2017 and 2018, respectively. Theend of fiscal 2023, the weighted-average remaining useful life of theamortization period was 1.6 years for technology patents, is 3.4 years. Due to the defensive nature3.0 years for developed technology, 4.7 years for customer relationships, and 0.6 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.
As
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At the end of January 31, 2018,fiscal 2023, future expected future amortization expense for intangible assets is as follows (in thousands):
Fiscal Years EndingFuture Expected 
Amortization
Expense
2024$16,210 
202515,425 
202612,830 
20273,107 
20281,054 
Thereafter596 
Total$49,222 
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 2022$358,736 
Goodwill acquired2,691 
Balance as of the end of fiscal 2023$361,427 
There were no impairments to goodwill during fiscal 2022 and 2023.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
 At the End of Fiscal
 20222023
Taxes payable$6,312 $16,615 
Accrued marketing13,257 14,228 
Accrued cloud and outside services6,135 7,644 
Supply chain-related accruals (1)
6,991 23,545 
Accrued service logistics and professional services6,244 7,927 
Acquisition earn-out and deferred consideration5,211 3,556 
Finance lease liabilities, current1,035 5,432 
Customer deposits from contracts with customers10,409 17,824 
Other accrued liabilities22,917 26,978 
Total accrued expenses and other liabilities$78,511 $123,749 

(1) Primarily consist of warranty reserves and accruals related to our inventory and inventory purchase commitments with our contract manufacturers.
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 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

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
20222023
Beginning balance$187,924 $246,307 
Additions217,595 155,414 
Recognition of deferred commissions(159,212)(155,865)
Ending balance$246,307 $245,856 
During fiscal 2021, 2022 and 2023, we recognized sales commission expenses of $150.2 million, $175.9 million, and $170.0 million, respectively. Of the $245.9 million total deferred commissions balance at the end of fiscal 2023, we expect to recognize approximately 28% as sales commission expense over the next 12 months and the remainder thereafter.
There was no impairment related to capitalized commissions for fiscal 2021, 2022 or 2023.
Deferred Revenue
Changes in total deferred revenue during the periods presented are as follows (in thousands):
Fiscal Year Ended
20222023
Beginning balance$843,697 $1,079,872 
Additions937,510 1,248,417 
Recognition of deferred revenue(701,335)(942,639)
Ending balance$1,079,872 $1,385,650 
During fiscal 2022 and 2023, we recognized approximately $442.7 million and $567.8 million, respectively, in revenue pertaining to deferred revenue as of the beginning of each period.
Remaining Performance Obligations
Total remaining performance obligations (RPO) which is contracted but not recognized revenue was $1.8 billion at the end of fiscal 2023. RPO consists of both deferred revenue and non-cancelable amounts that are expected to be invoiced and recognized as revenue in future periods. Product orders are generally cancelable until delivery has occurred, and as such unfulfilled product orders are excluded from RPO. Of the $1.8 billion RPO at the end of fiscal 2023, we expect to recognize approximately 47% over the next 12 months, and the remainder thereafter.
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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 will mature on April 15, 2023. 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. On October 14, 2022, we provided notice to the holders electing to settle all conversions on or after October 15, 2022 with cash up to the principal amount of the Notes and shares for any excess conversion value.
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.
The Notes consisted of the following (in thousands):
At the End of Fiscal
20222023
Liability:
Principal$575,000 $575,000 
Less: debt discount, net of amortization (1)
(35,641)— 
Less: debt issuance costs, net of amortization (1)
(2,580)(494)
Net carrying amount of the Notes$536,779 $574,506 
Stockholders' equity recorded at issuance:
Allocated value of the conversion feature (1)
$136,333 $— 
Less: debt issuance costs (1)
(3,068)— 
Additional paid-in capital$133,265 $— 
_________________________________
(1)Fiscal 2023 reflects the adoption of ASU 2020-06 on February 7, 2022 using the modified retrospective method as described in Note 2.
The total estimated fair values of the Notes at the end of fiscal 2022 and 2023 were $681.8 million and $660.0 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 2022 and 2023. 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 $29.91 on the last day of fiscal 2023, the if-converted value of the Notes of $654.6 million was greater than its principal amount. At the end of fiscal 2023, the remaining term of the Notes is approximately two months.
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The following table sets forth total interest expense recognized related to the Notes (in thousands):
Fiscal Year Ended
20222023
Amortization of debt discount (1)
$28,874 $— 
Amortization of debt issuance costs (1)
2,091 2,598 
Total amortization of debt discount and debt issuance costs30,965 2,598 
Contractual interest expense732 716 
Total interest expense related to the Notes$31,697 $3,314 
Effective interest rate of the liability component5.6 %0.6 %
_________________________________
(1)Fiscal 2023 reflects the adoption of ASU 2020-06 on February 7, 2022 using the modified retrospective method as described in Note 2.
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 up to a total of 21,884,155 shares of our common stock to offset the dilution and/or any cash payments we are required to make in excess of the principal amount upon conversion of the Notes at maturity, with such offset subject to a cap of $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). However, for conversions prior to maturity, the Capped Calls would be settled at their fair value, which may not completely offset, and may be substantially less than, the value of the consideration in excess of the principal amount of the Notes delivered upon such conversion. The cost of the Capped Calls was accounted for as a reduction to additional paid-in capital on the consolidated balance sheets.
Impact on Earnings Per Share
Subsequent to the adoption of ASU 2020-06, we compute the potentially dilutive shares of common stock related to the Notes for periods we report net income using the if-converted method. Upon conversion at maturity, 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 the exercise of the Capped Calls would offset 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.
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. In March 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced that it will cease publication of LIBOR by June 2023. In March 2023, we amended the Credit Facility to transition LIBOR to the Secured Overnight Financing Rate (SOFR) effective April 1, 2023. The annual interest rate for SOFR borrowings will be equal to term SOFR (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%.
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In February 2022, we repaid, in full, the $250.0 million outstanding under the Credit Facility. Prior to repayment, the outstanding loan bore weighted-average interest at the one-month LIBOR of approximately 1.65% and 1.60% resulting in interest expense of $1.4 million and $4.1 million during fiscal 2021 and 2022 and 1.61% resulting in interest expense of $0.3 million during the first quarter of fiscal 2023.
Loans under the Credit Facility are collateralized by substantially all of our assets and subject to certain restrictions and two financial ratios measured as of the last day of each fiscal quarter: 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 2023.
Note 5.8. Commitments and Contingencies
Operating Leases
WeAt the end of fiscal 2023, we had various non-cancelable operating and finance lease ourcommitments for office facilities under 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 lease for approximately 45,831 square feet of office space in Mountain View, California with a total rent obligation and management fees of $32.2 million.
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 2023, we had $4.1 million and $26.8$445.0 million of non-cancelable contractual purchase obligations primarily related to certaininventory purchase commitments, software service contracts, and other contracts.

hosting arrangements. In order to manage future demand for our products, we enter into agreements with manufacturers and suppliers to procure inventory based upon our demand forecasts.
Letters of Credit
In connection withAt the lease executed in August 2017,end of fiscal 2022 and 2023, 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$6.7 million and $9.6$8.0 million in connection with our facility leases. The letters of credit are collateralized by either restricted cash or the Credit Facility and mature aton various dates through August 2026.September 2030.
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 not recorded anyno material loss contingency has been recorded on our consolidated balance sheet as of January 31, 2018.the end of fiscal 2023.
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.
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In June 2022, we entered into an eight-year sublease through July 2030 for a new headquarters facility in Santa Clara, California with total lease payments of $100.2 million that include rent escalation and abatement clauses. The sublease of space with total lease payments of $89.4 million commenced in August 2022. Additional space with lease payments of $10.8 million will commence in May 2024 and end in July 2030 and therefore are excluded from our future lease payments disclosure below.
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.
We also lease certain engineering test equipment under financing agreements. These finance leases are three years and contain a bargain purchase option at the end of the respective lease term. It is reasonably certain that the bargain purchase option will be exercised.
The components of lease costs were as follows (in thousands):
Fiscal Year Ended
202120222023
Fixed operating lease cost$37,411 $37,598 $47,533 
Variable lease cost (1)
9,168 10,228 8,521 
Short-term lease cost (12 months or less)5,734 4,178 3,787 
Finance lease cost:
Amortization of finance lease right-of-use assets— 384 3,028 
Interest on finance lease liabilities— 42 330 
Total finance lease cost$— $426 $3,358 
Total lease cost$52,313 $52,430 $63,199 

(1)Variable lease cost predominantly included common area maintenance charges.
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Supplemental information related to leases is as follows (in thousands):
Fiscal Year Ended
20222023
Operating leases:
Weighted-average remaining lease term (in years)4.55.2
Weighted-average discount rate5.7 %6.1 %
Finance leases:
Finance lease right-of-use assets, gross (1)
$3,577 $17,596 
     Accumulated amortization(1)
(384)(3,412)
Finance lease right-of-use assets, net (1)
$3,193 $14,184 
Finance lease liabilities, current (2)
1,035 5,432 
Finance lease liabilities, non-current (3)
1,487 4,765 
Total finance lease liabilities$2,522 $10,197 
Weighted-average remaining lease term (in years)3.63.3
Weighted-average discount rate2.7 %5.1 %

(1) Included in the consolidated balance sheets within property and equipment, net.
(2) Included in the consolidated balance sheets within accrued expenses and other liabilities.
(3) Included in the consolidated balance sheets within other liabilities, non-current.
Supplemental cash flow information related to leases is as follows (in thousands):
Fiscal Year Ended
20222023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases$36,648 $49,955 
Financing cash outflows for finance leases$1,000 $6,138 
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases$7,517 $80,962 
Finance leases$3,577 $14,019 
Future lease payments under our non-cancelable leases at the end of fiscal 2023 are as follows (in thousands):
Fiscal Years EndingOperating LeasesFinance Leases
2024$45,153 $5,839 
202548,315 4,728 
202636,366 183 
202719,384 — 
202821,062 — 
Thereafter44,274 — 
Total future lease payments$214,554 $10,750 
Less: imputed interest(38,374)(553)
Present value of total lease liabilities$176,180 $10,197 
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Note 10. Restructuring and Other
During fiscal 2021, we carried out the following restructuring and other activities:
•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.
•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. All amounts were paid prior to the end of fiscal 2022.
•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 boardBoard of directors. AsDirectors. At the end of January 31, 2018,fiscal 2023, there were no shares of preferred stock issued or outstanding.
Class A and Class B Common Stock
We have two classes of authorized common stock, Class A common stock, 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 2023, 304,076,234 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 2023, we had reserved shares of common stock for future issuance as follows:


January 31, 2018
Shares underlying outstanding stock options46,359,9499,268,498 
Shares underlying outstanding restricted stock units17,682,64626,760,520 
Shares reserved for future equity awards19,684,91620,661,582 
Shares reserved for future employee stock purchase plan awards2,489,7675,309,812 
Total86,217,27862,000,412 
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 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, which was completed in the fourth quarter of fiscal 2022. In March 2022, our Board of Directors authorized the repurchase of up to an additional $250.0 million of our common stock, of which $31.1 million remained available at the end of fiscal 2023. In March 2023, our Board of Directors authorized the repurchase of up to an additional $250.0 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 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. During fiscal 2022, we repurchased and retired 8,489,168 shares of common stock at an average purchase price of $23.56 per share for an aggregate repurchase price of $200.0 million. During fiscal 2023, we repurchased and retired 7,832,229 shares of common stock at an average purchase price of $27.95 per share for an aggregate repurchase price of $218.9 million. Since the end of fiscal 2023, we have repurchased $31.1 million of additional shares.
Note 7.12. Equity Incentive Plans
Equity Incentive Plans
We maintain two 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 newOur equity awards are issued under our 2009 Plan aftergenerally vest over a two to four year period and expire no later than ten years from the effective date of our 2015 Plan. Outstanding awards granted under our 2009 Plan will remain subject togrant. Starting in the termsfourth quarter of our 2009 Plan and applicable award agreements, until such outstanding awards that arefiscal 2018, we discontinued granting stock options are exercised, terminated or expired by their terms.options.
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 each fiscal year, for a period of not more than ten years, commencing on February of each of1, 2016, through 2025, in an amount equal to 5% of the total number of shares of our capital stock outstanding as of the immediately preceding January 31.
The exercise price31 (the Evergreen Increase). In March 2022, our Board of stock options will generally not be less than 100%Directors approved an amendment and restatement of the fair market value2015 Plan to clarify the effect of our common stockchange to a 52/53 week fiscal year in September 2019 on the date of grant, as determined by our board of directors. OurEvergreen Increase.
We net-share settle equity awards generally vest overheld by certain employees by withholding shares upon vesting to satisfy tax withholding obligations. The shares 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 tworeduction to four year periodadditional paid-in capital and expire no later than ten years from the datereflected as a financing activity in our consolidated statements of grant.cash flows.
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.

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, 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-month6 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.
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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 of approximately $10.6 million to be recognized over the new offering period. The secondDuring fiscal 2021 and 2023, ESPP resets resulted in total modification charges of $23.8 million and $10.4 million, respectively, to be recognized over their new offering periods. There was no 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, 2019.


during fiscal 2022.
During the years ended January 31, 2016, 2017fiscal 2021, 2022 and 2018,2023, we recognized $4.4$25.8 million, $18.3$35.4 million and $18.3$22.9 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 2023, total unrecognized stock-based compensation expensecost related to our 2015 ESPP was $31.5 million, which is expected to be recognized over a weighted-average period of approximately 1.11.6 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 202212,268,938 $10.25 3.5$198,266 
Options exercised(2,988,068)8.29   
Options forfeited(12,372)1.83   
Balance at the end of fiscal 20239,268,498 $10.90 2.7$176,674 
Vested and exercisable at the end of fiscal 20239,077,014 $11.04 2.6$171,315 
The aggregate intrinsic value of options vested and exercisable asat the end of January 31, 2018fiscal 2023 is calculated based on the difference between the exercise price and the closing price of $20.14$29.91 of our Class A common stock on January 31, 2018.the last day of fiscal 2023. The aggregate intrinsic value of options exercised for the years ended January 31, 2016, 2017during fiscal 2021, 2022 and 20182023 was $29.5$118.8 million, $114.2$105.1 million and $104.9 million, respectively.$63.5 million.
The weighted-average grant date fair value of options granted was $8.38, $5.57 and $5.57 per share for the years ended January 31, 2016, 2017 and 2018, respectively. The total grant date fair value of options vested for the years ended January 31, 2016, 2017during fiscal 2021, 2022 and 20182023 was $35.4$20.1 million, $61.8$16.5 million and $42.5$7.0 million.
During fiscal 2021, 2022 and 2023, we recognized $8.6 million, respectively.
As$7.7 million and $4.9 million, of January 31, 2018, total unamortized stock-based compensation expense related to ourstock options. At the end of fiscal 2023, total unrecognized employee stockstock-based compensation cost related to outstanding options was $74.4$2.4 million, which is expected to be recognized over a weighted-average period of approximately 2.61.1 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.
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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. The assumptions used for the periods presented are as follows:
We estimate the fair value of employee stock options and ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions:
Year Ended January 31, Fiscal Year Ended
2016 2017 2018 202120222023
Employee Stock Options     Employee Stock Options   
Expected term (in years)6.0 - 7.4
 6.1
 6.1
Expected term (in years)5.65n/an/a
Expected volatility48% - 52%
 44% 47%Expected volatility52.07%n/an/a
Risk-free interest rate1.5% - 1.9%
 1.3% - 1.5%
 1.9%Risk-free interest rate0.3%n/an/a
Dividend rate—
 —
 —
Dividend rate—n/an/a
Fair value of common stock$13.94 - $19.68
 $10.37 - $14.52
 $12.84Fair value of common stock$15.79n/an/a
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 volatility52% - 113%44% - 61%45% - 54%
Risk-free interest rate0.1% - 0.7%
 0.5% - 0.9%
 0.9% - 1.4%
Risk-free interest rate0.1% - 0.4%0.1% - 0.2%0.9% - 4.0%
Dividend rate—
 —
 —
Dividend rate———
Fair value of common stockFair value of common stock$9.07 - $15.26$23.63 - $26.69$28.73 - $31.68
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 stock options and ESPP purchase rights.
Expected Volatility—Since we have limited trading historyThe expected volatility for stock options and 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.

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RSUs and PRSUs
Restricted Stock Units
A summary of the restricted stock unitRSU and PRSU activity under our 2015 Planequity incentive plans and related information is as follows:
Number of RSUs and PRSUs OutstandingWeighted-Average Grant Date Fair ValueAggregate Intrinsic Value
(in thousands)
Unvested balance at the end of fiscal 202228,712,878 $19.53 $757,446 
Granted15,319,768 29.67 
Vested(13,915,802)20.05 
Forfeited(3,356,324)21.75 
Unvested balance at the end of fiscal 202326,760,520 $24.78 $800,407 
 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 2023, we granted 750,000 performance stock units (net1,147,187 shares of 77,000 canceled units)PRSUs, at a target percentage of 100%, with both performance and service vesting conditions payable in common sharesstock, from 0% to 150% of the target number granted, contingent upon the degree to which the fiscal 2023 performance condition is met. At January 31, 2018,A total of 1,770,282 shares of PRSUs were earned at the end of fiscal 2023 based on the fiscal 2023 performance condition was satisfied. Stock-based compensation expense forconditions achieved and a portion of these performance stock units was $4.2 million forshares are subject to service conditions through the year ended January 31, 2018 and total unamortized stock-based compensation expense was $3.3 million asremaining vesting periods. The incremental shares of January 31, 2018, which is expected toPRSUs earned will be recognized over 2.2 years.

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% 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 calculationfirst quarter 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 1,375,210 shares of restricted stock. The conversion did not change the fair value or vesting conditions and therefore no modification is required.

fiscal 2024.
The aggregate fair value, as of restricted stock unitsthe respective vesting dates, of RSUs and PRSUs that vested during the year ended January 31, 2018fiscal 2021, 2022 and 2023 was $75.5$183.4 million, $322.2 million and $402.7 million.

As of January 31, 2018, total unamortizedDuring fiscal 2021, 2022 and 2023, we recognized $199.1 million, $242.1 million and $299.7 million in stock-based compensation expense related to outstanding restricted stock unitsRSUs and PRSUs. At the end of fiscal 2023, total unrecognized employee compensation cost related to unvested RSUs and PRSUs was $187.2$588.4 million, which is expected to be recognized over a weighted-average period of approximately 2.62.7 years.
Restricted Stock
A summary of the restricted stock activity 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 202254,977 $20.02 $1,450 
Vested(54,977)20.02 
Forfeited— — 
Unvested balance at the end of fiscal 2023— $— $— 
The aggregate fair value of restricted stock that vested during fiscal 2021, 2022 and 2023 was $18.3 million, $10.4 million and $1.9 million.
During fiscal 2021 and 2022, we recognized $9.3 million and $1.8 million in stock-based compensation expense related to restricted stock. The remaining stock-based compensation expense recognized related to restricted stock was not material during fiscal 2023.
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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
 202120222023
Cost of revenue—product$4,001 $6,334 $10,245 
Cost of revenue—subscription services14,979 21,240 22,630 
Research and development117,220 142,264 161,694 
Sales and marketing65,248 71,439 72,507 
General and administrative40,896 45,686 60,541 
Total stock-based compensation expense$242,344 $286,963 $327,617 
The tax benefit related to stock-based compensation expense for all periods presented was not material.
 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 LossIncome (Loss) per Share Attributable to Common Stockholders
Basic and diluted net lossincome (loss) per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Basic net lossincome (loss) per share attributable to common stockholders is computed by dividing the net lossincome (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 lossincome (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 and PRSUs, unvested restricted stock, units, repurchasablethe shares from early exercisedunderlying the conversion option in our Notes to the extent dilutive, and common stock optionsissuable pursuant to the ESPP. The adoption of ASU 2020-06 at the beginning of fiscal 2023 eliminates the treasury stock method and shares subjectinstead requires the application of the if-converted method to ESPP withholding are consideredcalculate the impact of our Notes on diluted EPS. Using this method, the numerator is affected by adding back interest expense related to bethe Notes and the denominator is affected by including the effect of potential share settlement, if the effect is dilutive. All potentially dilutive common stock equivalents, butincluding from our Notes, have been excluded from the calculation of diluted net loss per share attributable to common stockholders in periods of net loss as their effect is anti-dilutive.
The rights, including the liquidation and dividend rights, of the holders of our Class A and Class B common stock are identical, except with respect to voting. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis. We did not present dilutive net loss per share on an if-converted basis because the impact was not dilutive.
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The following table sets forth the computation of basic and diluted net lossincome (loss) per share attributable to common stockholders (in thousands, except per share data):
 Year Ended January 31,
 2016 2017 2018
Net loss$(213,752) $(245,066) $(177,602)
Weighted-average shares used in computing net loss
   per share attributable to common stockholders, basic and diluted		82,460
 194,714
 211,609
Net loss per share attributable to common stockholders,
basic and diluted
$(2.59) $(1.26) $(0.84)
 Fiscal Year Ended
 202120222023
Numerator:
Net income (loss) attributable to common stockholders, basic$(282,076)$(143,259)$73,071 
Add: Interest charges related to our Notes— — 3,314 
Net income (loss) attributable to common stockholders, diluted$(282,076)$(143,259)$76,385 
Denominator:
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders, basic267,824 285,882 299,478 
Add: Dilutive effect of common stock equivalents— — 39,706 
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders, diluted267,824 285,882 339,184 
Net income (loss) per share attributable to common stockholders, basic$(1.05)$(0.50)$0.24 
Net income (loss) per share attributable to common stockholders, diluted$(1.05)$(0.50)$0.23 
The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net lossincome (loss) per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (in thousands):
 Fiscal Year Ended
 202120222023
Stock options to purchase common stock23,180 15,686 10,516 
Unvested RSUs and PRSUs31,980 32,491 29,780 
Unvested restricted stock1,145 257 6 
Shares related to convertible senior notes21,884 21,884 — 
Shares issuable pursuant to the ESPP2,148 2,122 885 
Total80,337 72,440 41,187 

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 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
202120222023
Interest income (1)
$17,442 $9,371 $17,320 
Interest expense (2)
(31,403)(36,677)(4,749)
Foreign currency transactions gains (losses)2,507 (5,235)(8,345)
Other income2,327 2,443 4,069 
Total other income (expense), net$(9,127)$(30,098)$8,295 
_________________________________
(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 debt discount and debt issuance costs, contractual interest expense related to our debt and accretion of our finance lease liabilities.

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

 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)


 Fiscal Year Ended
 202120222023
Domestic$(312,119)$(192,058)$39,004 
International41,959 63,562 52,804 
Total$(270,160)$(128,496)$91,808 
The components of the provision for income taxes are as follows (in thousands):
Year Ended January 31, Fiscal Year Ended
2016 2017 2018 202120222023
Current: 
  
  
Current:   
State$210
 $389
 $525
State$442 $592 $5,999 
Foreign2,198
 1,806
 3,580
Foreign8,006 12,525 12,020 
Total$2,408
 $2,195
 $4,105
Total$8,448 $13,117 $18,019 
Deferred: 
  
  
Deferred:   
FederalFederal$(218)$— $(639)
StateState— — (99)
Foreign(839) (308) (216)Foreign3,686 1,646 1,456 
TotalTotal$3,468 $1,646 $718 
Provision for income taxes$1,569
 $1,887
 $3,889
Provision for income taxes$11,916 $14,763 $18,737 
 
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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
Year Ended January 31, 202120222023
2016 2017 2018
Tax at federal statutory rate$(72,142) $(82,682) $(57,144)Tax at federal statutory rate$(56,734)$(26,984)$19,280 
State tax, net of federal benefit152
 276
 351
State tax, net of federal benefit349 468 4,625 
Stock-based compensation expense10,866
 (5,242) (9,953)Stock-based compensation expense(604)(19,658)(11,976)
Research and development tax credits(3,832) (1,570) (7,629)Research and development tax credits(14,138)(16,783)(26,634)
U.S. taxes on foreign incomeU.S. taxes on foreign income14,021 25,059 19,065 
Foreign rate differential7,106
 15,878
 18,667
Foreign rate differential2,282 (1,698)(425)
Withholding taxWithholding tax34 143 2,339 
Change in valuation allowance58,979
 73,863
 (48,703)Change in valuation allowance63,146 48,270 10,631 
Remeasurement of deferred tax assets and liabilities—
 —
 107,029
Non-deductible expensesNon-deductible expenses— 4,381 2,091 
Other440
 1,364
 1,271
Other3,560 1,565 (259)
Provision for income taxes$1,569
 $1,887
 $3,889
Provision for income taxes$11,916 $14,763 $18,737 
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
 20222023
Deferred tax assets:  
Net operating loss carryforwards$369,904 $198,495 
Tax credit carryover134,085 171,775 
Accruals and reserves22,625 34,506 
Deferred revenue66,242 87,026 
Stock-based compensation expense25,247 25,564 
ASC 842 lease liabilities28,577 40,772 
Capitalized research and development— 154,027 
Other1,879 4,950 
Total deferred tax assets$648,559 $717,115 
Valuation allowance(554,553)(598,997)
Total deferred tax assets, net of valuation allowance$94,006 $118,118 
Deferred tax liabilities:  
Depreciation and amortization$(12,992)$(31,744)
Deferred commissions(53,219)(53,421)
Convertible debt(4,642)— 
ASC 842 right-of-use assets(24,608)(36,366)
Acquired intangibles and goodwill(6,850)(4,702)
Interest income(874)(2,521)
Total deferred tax liabilities$(103,185)$(128,754)
Net deferred tax liabilities$(9,179)$(10,636)
 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 decreasesAt the U.S. corporate federal income tax rate from 35% to 21% effective January 1, 2018. As a result, our U.S. federal and state deferred


tax assets and valuation allowance each decreased by approximately $98 million, and accordingly there is no impact to our provision for income taxes. Since we have a January 31end 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, 2018,2023, the undistributed earnings of $20.8$176.2 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.
92

AsAt the end of January 31, 2018,fiscal 2023, we had net operating loss carryforwards for federal income tax purposes of approximately $508.9$795.1 million and state income tax purposes of approximately $331.9$578.0 million. TheseThe federal net operating loss carryforwards willhave an indefinite life while the state net operating loss carryforwards begin to expire if not utilized, beginning in 2028 for federal and state income tax purposes.2025.
We had federal and state research and development tax credit carryforwards of approximately $26.6$134.2 million and $22.2$116.0 million asat the end of January 31, 2018.fiscal 2023. 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.
Starting in fiscal 2023, changes to Section 174 of the Internal Revenue Code made by the Tax Cuts and Jobs Act of 2017 no longer permit an immediate deduction for research and development expenditures in the tax year that such costs are incurred. These costs are capitalized resulting in an increase in deferred tax assets and state income taxes.
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$70.1 million and decreased by $31.3$44.4 million, respectively, during the years ended January 31, 2016, 2017fiscal 2022 and 2018.2023.
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, we completed an analysis through January 2018 to evaluate whether there are any limitations of our net operating loss carryforwards and concluded no limitations currently exist.
Uncertain Tax Positions
The activity related to the unrecognized tax benefits is as follows (in thousands):
 Fiscal Year Ended
 202120222023
Gross unrecognized tax benefits—beginning balance$28,570 $39,571 $51,582 
Decreases related to tax positions taken during prior years(345)(173)— 
Increases related to tax positions taken during prior years1,881 1,201 2,172 
Increases related to tax positions taken during current year9,465 10,983 15,143 
Gross unrecognized tax benefits—ending balance$39,571 $51,582 $68,897 
 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
AsAt the end of January 31, 2018,fiscal 2023, our gross unrecognized tax benefit was approximately $12.4$68.9 million, none$6.2 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 2023, we had no 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.
93

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 one business activity and there are no segment managers who are held accountable for operations or operating results. Accordingly, we have a single reportable segment.
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
 202120222023
United States$1,195,428 $1,580,022 $1,971,757 
Rest of the world488,751 600,826 781,677 
Total revenue$1,684,179 $2,180,848 $2,753,434 
 Year Ended January 31,
 2016 2017 2018
United States$343,625
 $561,352
 $762,391
Rest of the world96,708
 166,625
 260,628
Total revenue$440,333
 $727,977
 $1,023,019


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 20222023
United States$78,692
 $85,430
United States$187,228 $259,131 
Rest of the world3,003
 3,712
Rest of the world8,054 13,314 
Total long-lived assets$81,695
 $89,142
Total long-lived assets$195,282 $272,445 
 
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 immediately vest. Our contributions to date.the plan were $10.2 million, $11.1 million and $12.2 million during fiscal 2021, 2022 and 2023.
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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 2023, 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 2023.
The effectiveness of our internal control over financial reporting as of January 31, 2018the end of fiscal 2023 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 2023 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.

95


Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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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 20182023 annual meeting of stockholders (2018(2023 Proxy Statement), which will be filed not later than 120 days after the end of our fiscal year ended January 31, 2018.February 5, 2023.
Item 11. Executive Compensation.
The information required by this item is incorporated herein by reference to our 20182023 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 20182023 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 20182023 Proxy Statement.
Item 14. Principal Accounting Fees and Services.
Our independent public accounting firm is Deloitte & Touche LLP, San Jose, CA, PCAOB ID No. 34
The information required by this item is incorporated herein by reference to our 20182023 Proxy Statement.

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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.
98


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+10-K001-3757010.34/7/2022
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-Q001-3757010.212/9/2019
10.11+10-Q001-3757010.1212/9/2020
10.12*————
10.13+8-K001-3757010.23/16/2018
99

Incorporation By Reference
Exhibit
Number		DescriptionFormSEC File No.ExhibitFiling Date
10.14+10-K001-3757010.164/7/2022
10.15*+————
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.
100

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, 201831, 2023
PURE STORAGE, INC.
By:/s/ Charles H. Giancarlo
Charles H. Giancarlo
Chief Executive Officer
 

101


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, John Colgrove and Nicole Armstrong, 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 31, 2023
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 Officer)
March 31, 2023
**Kevan KryslerFurnished herewith.
+/s/ Mona ChuIndicates management contract or compensatory plan.
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
March 31, 2023
Mona Chu
/s/ Scott DietzenVice Chairman and DirectorMarch 31, 2023
Scott Dietzen
/s/ John ColgroveChief Visionary Officer and DirectorMarch 31, 2023
John Colgrove
/s/ Andrew BrownDirectorMarch 31, 2023
Andrew Brown
/s/ John MurphyDirectorMarch 31, 2023
John Murphy
/s/ Jeff RothschildDirectorMarch 31, 2023
Jeff Rothschild
/s/ Roxanne TaylorDirectorMarch 31, 2023
Roxanne Taylor
/s/ Susan TaylorDirectorMarch 31, 2023
Susan Taylor
/s/ Greg TombDirectorMarch 31, 2023
Greg Tomb
/s/ Mallun YenDirectorMarch 31, 2023
Mallun Yen



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