UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON, DC~~Washington, D.C. 20549



FORM			10-Q

(Mark One)

x ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October 31, 2017~~November 1, 2020

o ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37570



Pure Storage, Inc.
(Exact Name of Registrant as Specified in its Charter)



Delaware						27-1069557
(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:

~~650 Castro Street, Suite 400~~

~~Mountain View, California~~

~~94041~~

~~(Address~~Title of ~~principal executive offices, including zip code)~~

~~(Zip Code)~~

~~(800) 379-7873~~

~~(Registrant’s telephone number, including area code)~~

each class

Trading symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.0001 par value per share

PSTG

New York Stock Exchange LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 x No o

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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer” and~~filer,” “smaller reporting ~~company”~~company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

o☐

Non-accelerated filer

o☐

~~(Do not check if a small reporting company)~~

Smaller reporting company

o☐

Emerging growth company

o☐

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x

As of ~~November 30, 2017~~December 4, 2020, the registrant had ~~112,788,614~~272,810,989 shares of its Class A common stock ~~outstanding and 103,994,591 shares of its Class B common stock~~ outstanding.

Table of Contents

PURE STORAGE, INC.

FORM 10-Q for the Quarter Ended November 1, 2020

Table of Contents



			Page
Note About Forward-Looking Statements			ii
PART I.		FINANCIAL INFORMATION
Item 1.		Financial Statements (unaudited)	21
		Condensed Consolidated Balance Sheets ~~as of January 31, 2017 and October 31, 2017~~	21
		Condensed Consolidated Statements of Operations ~~for the Three and Nine Months Ended October 31, 2016 and 2017~~	32
		Condensed Consolidated Statements of Comprehensive Loss ~~for the Three and Nine Months Ended October 31, 2016 and 2017~~	43
		Condensed Consolidated Statements of Stockholders' Equity	4
		Condensed Consolidated Statements of Cash Flows ~~for the Nine Months Ended October 31, 2016 and 2017~~	56
		Notes to Condensed Consolidated Financial Statements	67
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	1829
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	2939
Item 4.		Controls and Procedures	2940
PART II.		OTHER INFORMATION
Item 1.		Legal Proceedings	3141
Item 1A.		Risk Factors	3141
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	5062
Item 3.		Defaults Upon Senior Securities	5062
Item 4.		Mine Safety Disclosures	5062
Item 5.		Other Information	5062
Item 6.		Exhibits	5063
Signatures			51
~~Exhibit Index~~	52

Table of Contents

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q include, but are not limited to, statements regarding our ability to sustain or manage our ~~expansion~~profitability and growth, 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 the~~continue 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, 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 products~~alternative offerings from incumbent, ~~vendors, hyperconverged products, defined as server compute~~emerging and ~~storage combined within a single chassis, or~~ public cloud vendors, our expectations concerning relationships with third parties, including our partners, customers and ~~customers,~~contract manufacturers, the impact of the Portworx acquisition and technology, the adequacy of our intellectual property rights, ~~and~~ expectations concerning ~~pending~~potential legal proceedings and related ~~costs.~~costs, the impact of adverse economic conditions and the duration and scope of the COVID-19 pandemic and related "shelter-in-place" orders and other measures and its impact on our business, operating results, cash flows and/or financial condition.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors.” These risks are not exhaustive. Other sections of this report include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

Investors should not rely upon forward-looking statements as predictions of future events. We cannot assure investors that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q 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.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PURE STORAGE, INC.

Condensed Consolidated Balance Sheets

(in thousands, except per share data, unaudited)


								At the End of
								Fiscal 2020		Third Quarter of Fiscal 2021
	As of January 31, 2017			As of October 31, 2017
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	183,675		$	182,039		Cash and cash equivalents	$	362,635	$	263,702
Marketable securities	362,986			369,337			Marketable securities	936,518		937,718
Accounts receivable, net of allowance of $2,000 and $2,073 as of January 31, 2017 and October 31, 2017	168,978			202,006
Accounts receivable, net of allowance of $542 and $558							Accounts receivable, net of allowance of $542 and $558	458,643		378,193
Inventory	23,498			37,208			Inventory	38,518		43,152
Deferred commissions, current	15,787			20,187			Deferred commissions, current	37,148		42,728
Prepaid expenses and other current assets	25,157			24,522			Prepaid expenses and other current assets	56,930		77,813
Total current assets	780,081			835,299			Total current assets	1,890,392		1,743,306
Property and equipment, net	81,695			84,264			Property and equipment, net	122,740		158,200
Operating lease right-of-use assets							Operating lease right-of-use assets	112,854		137,856
Deferred commissions, non-current							Deferred commissions, non-current	102,056		109,361
Intangible assets, net	6,560			5,432			Intangible assets, net	58,257		81,075
Deferred income taxes, non-current	844			965
Goodwill							Goodwill	37,584		360,997

Restricted cash							Restricted cash	15,287		11,349

Other assets, non-current	30,565			36,596			Other assets, non-current	25,034		50,851
Total assets	$	899,745		$	962,556		Total assets	$	2,364,204	$	2,652,995
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	52,719		$	66,664		Accounts payable	$	77,651	$	89,369
Accrued compensation and benefits	39,252			50,077			Accrued compensation and benefits	106,592		83,163
Accrued expenses and other liabilities	21,697			24,945			Accrued expenses and other liabilities	47,223		47,939
Operating lease liabilities, current							Operating lease liabilities, current	27,264		30,902
Deferred revenue, current	158,095			183,889			Deferred revenue, current	356,011		408,086
Liability related to early exercised stock options	1,362			568
Total current liabilities	273,125			326,143			Total current liabilities	614,741		659,459
Long-term debt							Long-term debt	477,007		748,422
Operating lease liabilities, non-current							Operating lease liabilities, non-current	92,977		124,382
Deferred revenue, non-current	145,031			173,641			Deferred revenue, non-current	341,277		354,678

Other liabilities, non-current	3,159			3,651			Other liabilities, non-current	8,084		30,973
Total liabilities	421,315			503,435			Total liabilities	1,534,086		1,917,914
Commitments and contingencies (Note 5)
Commitments and contingencies (Note 8)							Commitments and contingencies (Note 8)
Stockholders’ equity:							Stockholders’ equity:
Preferred stock, par value of $0.0001 per share— 20,000 shares authorized as of January 31, 2017 and October 31, 2017; no shares issued and outstanding as of January 31, 2017 and October 31, 2017	—			—
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 October 31, 2017; 204,364 (Class A 87,027, Class B 117,337) and 216,016 (Class A 109,178, Class B 106,838) shares issued and outstanding as of January 31, 2017 and October 31, 2017	20			20
Preferred stock, par value of $0.0001 per share— 20,000 shares authorized; 0 shares issued and outstanding							Preferred stock, par value of $0.0001 per share— 20,000 shares authorized; 0 shares issued and outstanding	0		0
Class A and Class B common stock, par value of $0.0001 per share—2,250,000 (Class A 2,000,000, Class B 250,000) shares authorized; 264,008 and 272,040 Class A 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; 264,008 and 272,040 Class A shares issued and outstanding	26		27
Additional paid-in capital	1,281,452			1,428,024			Additional paid-in capital	2,107,579		2,238,714
Accumulated other comprehensive loss	(562		)	(719		)
Accumulated other comprehensive income							Accumulated other comprehensive income	5,449		9,059
Accumulated deficit	(802,480		)	(968,204		)	Accumulated deficit	(1,282,936)		(1,512,719)
Total stockholders’ equity	478,430			459,121			Total stockholders’ equity	830,118		735,081
Total liabilities and stockholders’ equity	$	899,745		$	962,556		Total liabilities and stockholders’ equity	$	2,364,204	$	2,652,995

See the accompanying notes to condensed consolidated financial statements.

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PURE STORAGE, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data, unaudited)


	Third Quarter of Fiscal				First Three Quarters of Fiscal
	2020		2021		2020		2021

Revenue:
Product	$	323,268	$	274,470	$	862,137	$	793,718
Subscription services	105,141		136,149		289,299		387,743
Total revenue	428,409		410,619		1,151,436		1,181,461
Cost of revenue:
Product	89,998		86,661		259,460		240,677
Subscription services	37,773		47,442		106,632		132,717
Total cost of revenue	127,771		134,103		366,092		373,394
Gross profit	300,638		276,516		785,344		808,067
Operating expenses:
Research and development	106,663		122,981		318,758		350,079
Sales and marketing	184,819		172,282		537,633		517,149
General and administrative	37,416		46,467		119,542		132,063
Restructuring and other	0		0		0		22,990
Total operating expenses	328,898		341,730		975,933		1,022,281
Loss from operations	(28,260)		(65,214)		(190,589)		(214,214)
Other income (expense), net	9		(4,887)		(2,459)		(6,700)
Loss before provision for income taxes	(28,251)		(70,101)		(193,048)		(220,914)
Provision for income taxes	1,731		4,121		3,288		8,869
Net loss	$	(29,982)	$	(74,222)	$	(196,336)	$	(229,783)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.12)	$	(0.28)	$	(0.78)	$	(0.87)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	255,047		269,144		250,618		265,626

Three Months Ended
October 31, Nine Months Ended October 31,
2016 2017 2016 2017
Revenue:

Product $ 160,523
$ 223,196
$ 403,181
$ 536,634
Support 36,433
54,478
96,936
148,132
Total revenue 196,956
277,674
500,117
684,766
Cost of revenue:

Product 54,725
75,392
131,618
179,289
Support 14,597
20,467
41,531
56,569
Total cost of revenue 69,322
95,859
173,149
235,858
Gross profit 127,634
181,815
326,968
448,908
Operating expenses:

Research and development 61,612
68,927
173,185
203,716
Sales and marketing 91,392
129,299
262,073
346,896
General and administrative 22,810
25,406
64,021
67,664
Legal settlement 30,000
—
30,000
—
Total operating expenses 205,814
223,632
529,279
618,276
Loss from operations (78,180 ) (41,817 ) (202,311 ) (169,368 )
Other income (expense), net (192 ) 1,138
1,127
6,399
Loss before provision for income taxes (78,372 ) (40,679 ) (201,184 ) (162,969 )
Provision for income taxes 441
970
967
2,755
Net loss $ (78,813 ) $ (41,649 ) $ (202,151 ) $ (165,724 )
Net loss per share attributable to common stockholders, basic and diluted $ (0.40 ) $ (0.20 ) $ (1.05 ) $ (0.79 )
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 195,807
213,274
192,637
209,456

See the accompanying notes to condensed consolidated financial statements.

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PURE STORAGE, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands, unaudited)


	Third Quarter of Fiscal				First Three Quarters of Fiscal
	2020		2021		2020		2021

Net loss	$	(29,982)	$	(74,222)	$	(196,336)	$	(229,783)
Other comprehensive income (loss) net of tax:
Unrealized net gains (losses) on available-for-sale securities	1,927		(2,869)		5,725		4,736
Less: reclassification adjustment for net gains on available-for-sale securities included in net loss	(220)		(257)		(271)		(1,126)
Change in unrealized net gains (losses) on available-for-sale securities	1,707		(3,126)		5,454		3,610
Comprehensive loss	$	(28,275)	$	(77,348)	$	(190,882)	$	(226,173)

See the accompanying notes to condensed consolidated financial statements.

Three Months Ended
October 31, Nine Months Ended October 31,
2016 2017 2016 2017
Net loss $ (78,813 ) $ (41,649 ) $ (202,151 ) $ (165,724 )
Other comprehensive income (loss):

Change in unrealized net gain (loss) on available-for-sale securities (554 ) (439 ) 298
(157 )
Comprehensive loss $ (79,367 ) $ (42,088 ) $ (201,853 ) $ (165,881 )

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PURE STORAGE, INC.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, unaudited)


	Third Quarter of Fiscal 2020
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at the end of the second quarter of fiscal 2020	255,752	$	26	$	1,982,407	$	3,409	$	(1,248,303)	$	737,539
Issuance of common stock upon exercise of stock options	934	0		6,715		—		—		6,715
Stock-based compensation expense	—	—		52,336		—		—		52,336
Vesting of restricted stock units	2,557	0		0		—		—��		—
Net issuance of restricted stock	(93)	—		—		—		—		—
Tax withholding on vesting of restricted stock	—	—		(1,614)		—		—		(1,614)
Common stock issued under employee stock purchase plan	770	—		11,249		—		—		11,249
Other comprehensive income	—	—		—		1,707		—		1,707
Net loss	—	—		—		—		(29,982)		(29,982)
Balance at the end of the third quarter of fiscal 2020	259,920	$	26	$	2,051,093	$	5,116	$	(1,278,285)	$	777,950


	Third Quarter of Fiscal 2021
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at the end of the second quarter of fiscal 2021	267,776	$	27	$	2,172,391	$	12,185	$	(1,438,497)	$	746,106
Issuance of common stock upon exercise of stock options	678	0		4,019						4,019
Stock-based compensation expense	—	—		59,734		—		—		59,734
Vesting of restricted stock units	2,990	0		0		—		—		—
Tax withholding on vesting of restricted stock	(86)	—		(1,239)		—		—		(1,239)
Forfeiture of restricted stock	(87)	—		—		—		—		—
Common stock issued under employee stock purchase plan	2,129	—		16,418		—		—		16,418
Repurchases of common stock	(1,360)	0		(21,411)		—		—		(21,411)
Equity awards assumed in an acquisition	—	—		8,802		—		—		8,802
Other comprehensive loss	—	—		—		(3,126)		—		(3,126)
Net loss	—	—		—		—		(74,222)		(74,222)
Balance at the end of the third quarter of fiscal 2021	272,040	$	27	$	2,238,714	$	9,059	$	(1,512,719)	$	735,081

See the accompanying notes to condensed consolidated financial statements.

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PURE STORAGE, INC.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, unaudited)


	First Three Quarters of Fiscal 2020
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at the end of fiscal 2019	243,524	$	24	$	1,820,043	$	(338)	$	(1,081,949)	$	737,780
Issuance of common stock upon exercise of stock options	4,797	1		26,005		—		—		26,006
Stock-based compensation expense	—	—		170,542		—		—		170,542
Vesting of restricted stock units	6,884	1		(1)		—		—		0
Net issuance of restricted stock	972	—		—		—		—		—
Tax withholding on vesting of restricted stock	—	—		(8,787)		—		—		(8,787)
Common stock issued under employee stock purchase plan	3,743	—		43,291		—		—		43,291
Other comprehensive income	—	—		—		5,454		—		5,454
Net loss	—	—		—		—		(196,336)		(196,336)
Balance at the end of the third quarter of fiscal 2020	259,920	$	26	$	2,051,093	$	5,116	$	(1,278,285)	$	777,950


	First Three Quarters of Fiscal 2021
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at the end of fiscal 2020	264,008	$	26	$	2,107,579	$	5,449	$	(1,282,936)	$	830,118
Issuance of common stock upon exercise of stock options	4,991	1		25,644		—		—		25,645
Stock-based compensation expense	—	—		179,884		—		—��		179,884
Vesting of restricted stock units	8,445	1		(1)		—		—		—
Tax withholding on vesting of restricted stock	(305)	—		(4,080)		—		—		(4,080)
Cancellation and forfeiture of restricted stock	(317)	—		0		—		—		0
Common stock issued under employee stock purchase plan	3,714	—		32,439		—		—		32,439
Repurchases of common stock	(8,496)	(1)		(111,553)		—		—		(111,554)
Equity awards assumed in an acquisition	—	—		8,802		—		—		8,802
Other comprehensive income	—	—		—		3,610		—		3,610
Net loss	—	—		—		—		(229,783)		(229,783)
Balance at the end of the third quarter of fiscal 2021	272,040	$	27	$	2,238,714	$	9,059	$	(1,512,719)	$	735,081

See the accompanying notes to condensed consolidated financial statements.

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PURE STORAGE, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)


	First Three Quarters of Fiscal
		2020		2021

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(196,336)	$	(229,783)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		66,785		49,811
Amortization of debt discount and debt issuance costs		20,186		21,525
Stock-based compensation expense		174,790		179,755
Impairment of long-lived assets		0		7,505
Other		(483)		4,111
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net		17,079		83,220
Inventory		2,722		(4,724)
Deferred commissions		(8,158)		(12,885)
Prepaid expenses and other assets		1,464		(37,606)
Operating lease right-of-use assets		19,962		21,434
Accounts payable		(35,244)		8,566
Accrued compensation and other liabilities		(31,011)		(9,737)
Operating lease liabilities		(19,020)		(20,444)
Deferred revenue		106,980		57,860
Net cash provided by operating activities		119,716		118,608
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(74,206)		(73,643)
Acquisitions, net of cash acquired		(51,594)		(339,806)
Purchase of intangible assets		(9,000)		0

Purchases of marketable securities		(640,024)		(454,391)
Sales of marketable securities		116,518		132,207
Maturities of marketable securities		345,657		324,780

Other		0		(5,000)
Net cash used in investing activities		(312,649)		(415,853)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from exercise of stock options		25,804		25,677
Proceeds from issuance of common stock under employee stock purchase plan		43,291		32,439
Proceeds from borrowings, net of issuance costs		0		251,892

Repayment of debt assumed from acquisition		(11,555)		0
Tax withholding on vesting of restricted stock		(8,787)		(4,080)
Repurchases of common stock		0		(111,554)
Net cash provided by financing activities		48,753		194,374
Net decrease in cash, cash equivalents and restricted cash		(144,180)		(102,871)
Cash, cash equivalents and restricted cash, beginning of period		463,813		377,922
Cash, cash equivalents and restricted cash, end of period		$	319,633	$	275,051

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD
Cash and cash equivalents		$	304,346	$	263,702
Restricted cash		15,287		11,349
Cash, cash equivalents and restricted cash, end of period		$	319,633	$	275,051

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest		$	718	$	1,062
Cash paid for income taxes		$	3,398	$	8,911

Cash paid for amounts included in the measurement of lease liabilities		$	24,403	$	27,336
Property and equipment purchased but not yet paid		$	5,202	$	10,644
Operating lease right-of-use assets obtained in exchange for operating lease liabilities		$	14,937	$	53,289
Fair value of equity awards assumed in an acquisition		$	0	$	8,802

Nine Months Ended October 31,
2016 2017
CASH FLOWS FROM OPERATING ACTIVITIES

Net loss $ (202,151 ) $ (165,724 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization 35,978
45,525
Stock-based compensation expense 79,129
107,920
Other 1,051
879
Changes in operating assets and liabilities:

Accounts receivable, net (38,186 ) (33,630 )
Inventory (189 ) (14,314 )
Deferred commissions 1,844
(7,629 )
Prepaid expenses and other current assets 39
(112 )
Accounts payable 3,639
11,808
Accrued compensation and other liabilities 6,786
14,629
Deferred revenue 60,180
54,404
Net cash provided by (used in) operating activities (51,880 ) 13,756
CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment (64,602 ) (44,351 )
Purchase of intangible assets (1,000 ) —
Purchases of marketable securities (483,558 ) (151,998 )
Sales of marketable securities 79,815
46,067
Maturities of marketable securities 38,213
99,021
Net increase in restricted cash (5,600 ) (2,029 )
Net cash used in investing activities (436,732 ) (53,290 )
CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds from exercise of stock options 10,725
15,761
Proceeds from issuance of common stock under employee stock purchase plan 25,606
22,137
Net cash provided by financing activities 36,331
37,898
Net decrease in cash and cash equivalents (452,281 ) (1,636 )
Cash and cash equivalents, beginning of period 604,742
183,675
Cash and cash equivalents, end of period $ 152,461
$ 182,039
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for income taxes $ 2,510
$ 2,410
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION

Property and equipment purchased but not yet paid $ 5,956
$ 9,831
Vesting of early exercised stock options $ 794
$ 794

See the accompanying notes to condensed consolidated financial statements.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

Data is foundational to our customers' digital transformation and we are focused on delivering innovative and disruptive technology and data storage solutions that enable customers to maximize the value of their data. We started with the vision of making flash storage available to enterprise organizations everywhere and established an entirely new customer experience including our innovative Evergreen Storage subscription that radically simplified storage ownership and reduced total cost of ownership for our customers.

Our solutions serve data workloads on-premise, in the cloud, or hybrid environments and include mission-critical production, test/development, analytics, disaster recovery, and backup/recovery.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

In September 2019, we adopted a 52/53 week fiscal year consisting of four 13-week quarters ending on the first Sunday after January 30, which for fiscal 2020 was February 2, 2020 and for fiscal 2021 will be January 31, 2021. The third quarter of fiscal 2020 and 2021 ended on October 31, 2019 and November 1, 2020. Unless otherwise stated, all dates refer to the our fiscal year and fiscal periods.

The condensed consolidated financial statements include the accounts of the ~~company~~Company and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Consolidated Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and applicable rules and regulations of the Securities and Exchange Commission (the SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for ~~the year ended January 31, 2017.~~fiscal 2020.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ~~2018~~2021 or any future period.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ from these ~~estimates.~~estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment from the ongoing COVID-19 pandemic. Such estimates include, but are not limited to, the determination of ~~best estimate of~~standalone selling price ~~included in multiple-element~~for revenue arrangements ~~sales commissions,~~with multiple performance obligations, useful lives of intangible assets and property and equipment, ~~fair values~~the period of benefit for deferred contract costs for commissions, stock-based ~~awards,~~compensation, provision for income taxes including related reserves, and ~~contingent~~fair value of equity assumed, 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.

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 $4.9 million and $19.0 million in the third quarter and first three quarters of fiscal 2021.

Restricted Cash

Restricted cash is comprised of cash collateral for ~~a corporate credit card program and~~ letters of credit related to our ~~facility leases. As~~leases and for a vendor credit card program. At the end of ~~January 31, 2017~~fiscal 2020 and ~~October 31, 2017,~~the third quarter of fiscal 2021, we had restricted cash of ~~$12.7~~$15.3 million and ~~$14.8 million, which was included in other assets, non-current, in the condensed consolidated balance sheets.~~$11.3 million.

Marketable Securities

We classify our marketable securities as available-for-sale at the time of purchase and reevaluate such classification at each balance sheet date. We may sell these securities at any time for use in current operations even if they have not yet reached maturity. As a result, we classify our securities, including those with maturities beyond twelve months, as current assets in the accompanying condensed consolidated balance sheets. We carry these securities at fair value and record unrealized gains and losses, in accumulated other comprehensive income (loss), which is reflected

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~~PURE STORAGE, INC.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

as a component of stockholders’ equity. We evaluate our securities ~~to assess whether those~~ with unrealized loss positions ~~are other~~as to whether the declines in fair value were due to credit losses, and record the portion of impairment relating to the credit losses through allowance for credit losses limited to the amount that fair value was less than ~~temporarily impaired. We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell~~ the ~~securities before the recovery of their~~amortized cost basis. 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. ~~To date, there have been no declines in value deemed to be other than temporary in any of our securities.~~ Realized gains and losses are reported in other income (expense), net in the condensed consolidated statements of operations.

~~Deferred Commissions~~Business Combinations

~~Deferred commissions consist~~We allocate the purchase price to the assets acquired and liabilities assumed based on their estimated fair values. The excess 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~~purchase price over the ~~same~~fair values of the assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, ~~that revenue is recognized~~which may be up to one year from the ~~related customer contract. Amortization~~acquisition date, we may record adjustments to the estimated fair value of ~~deferred commissions~~the assets acquired and liabilities assumed, with the corresponding offset to goodwill. The results of operations of an acquired business is included in ~~sales~~our condensed consolidated financial statements from the date of acquisition. Acquisition-related expenses are expensed as incurred.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Operating Leases

We determine if an arrangement contains a lease at inception. Lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest rate implicit in our operating leases is not readily determinable, and ~~marketing~~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 operating 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 have elected to account for the lease and non-lease components of operating lease contract consideration as a single lease component.

Certain of the operating lease agreements contain rent concession, rent escalation, and option to renew provisions. Rent concession and rent escalation provisions are considered in determining the lease cost. Lease cost is recognized on a straight-line basis over the lease term commencing on the date we have the right to use the leased property. We generally use the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that an extension or termination option will be exercised.

In addition, certain of our operating lease agreements contain tenant improvement allowances from our landlords. These allowances are accounted for as lease incentives and reduce our ROU asset and lease cost over the lease term.

For short-term leases with lease term no longer than twelve months, and do not include an option to purchase the underlying asset that we are reasonably certain to exercise, we recognize rent expense in ~~the~~our condensed consolidated statements of ~~operations.~~operations on a straight-line basis over the lease term and record variable lease payments as incurred.

AsRevenue Recognition

We generate revenue primarily from 2 sources: (1) product revenue which includes hardware and embedded software and (2) subscription services revenue which includes Evergreen Storage subscriptions, and our unified subscription that includes Pure as-a-Service and Cloud Block Store.

Our product revenue is derived from the sale of ~~January 31, 2017~~integrated storage hardware and ~~October 31, 2017,~~operating system software. We typically recognize product revenue upon transfer of control to our customers. Products are typically shipped directly by us to customers.

Our subscription services revenue is derived from the services we ~~recorded deferred commissions, current,~~perform in connection with the sale of ~~$15.8 million~~subscription services and ~~$20.2 million,~~is recognized ratably over the contractual term, which generally ranges from one to six years. The majority of our product solutions are sold with an Evergreen Storage subscription service agreement, which typically commences upon transfer of control of the corresponding products to our customers. Costs for subscription services are expensed when incurred. In addition, our Evergreen Storage subscription provides our customers with a new controller based upon certain terms. The controller refresh represents a separate performance obligation that is included within the Evergreen Storage subscription service agreement and ~~deferred commissions, non-current,~~the allocated revenue is recognized upon shipment of ~~$14.9 million~~the controller.

Our subscription services also include the right to receive unspecified software updates and ~~$18.2 million, in~~upgrades on a when-and-if-available basis, software bug fixes, replacement parts and other ~~assets, non-current, in~~services related to the ~~condensed consolidated balance sheets.~~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 ~~sales commission expenses~~as services are performed.

Table of ~~$21.6 millionand $38.3 million during the three months ended October 31, 2016 and 2017, and $58.8 million and~~ ~~$84.3 million~~ ~~during the nine months October 31, 2016 and 2017.~~Contents

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~In May 2014, the~~PURE STORAGE, INC.

Notes to Condensed Consolidated Financial ~~Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), requiring an entity to~~Statements (Unaudited)

We recognize revenue ~~when it transfers~~upon the transfer of promised goods or services to customers in an amount that reflects the consideration ~~to which the entity expects~~we expect to be entitled to in exchange for those goods or services. ~~ASU 2014-09~~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 ~~supersede nearly all existing revenue recognition guidance under U.S. GAAP when it becomes effective.~~ be entitled to in exchange for transferring goods or services to the customer. We allocate the transaction price to each performance obligation for contracts that contain multiple performance obligations based on a relative standalone selling price which is determined based on the price at which the performance obligation is sold separately, or if not observable through past transactions, is estimated taking into account available information such as market conditions and internally approved pricing guidelines related to performance obligations.

Recent Accounting Pronouncement Not Yet Adopted

In August ~~2015,~~2020, the ~~FASB~~Financial Accounting Standards Board issued ~~ASU No. 2015-14, Revenue from~~Accounting Standards Update 2020-06, Accounting for Convertible Instruments and Contracts ~~with Customers, deferring~~in an Entity's Own Equity, which simplifies the ~~effective date~~accounting for ~~ASU 2014-09 by one year.~~certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share (EPS) calculations as a result of these changes. The ~~new~~ standard will be effective for us beginning February 7, 2022 and can be applied on ~~February 1, 2018. This standard may be adopted using~~ either ~~the full~~a fully retrospective or modified retrospective methods. We anticipate adopting the standard retrospectively to all prior periods presented. While we are in the final stage of evaluating the impact of the new standard on our accounting policies, processes, and system requirements, and have assigned internal and external resources to assist in our evaluation and system implementation, we believe the impact on our consolidated financial statements upon the adoption of this standard will be primarily an increase in revenue, a decrease in deferred revenue balance, a decrease in sales and marketing expenses and an increase in deferred commissions balance. The impact to revenue and deferred revenue balance is primarily attributable to the removal of current limitation on contingent revenue accelerating revenue recognition for certain contracts. The impact to sales and marketing expenses and deferred commissions balance is primarily attributable to a change in current amortization period from contract term to expected customer life as required by the new standard. Additionally, we have made and will continue to make investments in systems to enable timely and accurate reporting under the new standard.

~~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.basis. 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~~permitted for ~~assets held at amortized cost basis and available-for-sale debt securities to require that credit losses on available-~~

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~~PURE STORAGE, INC.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

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 usfiscal years beginning ~~on February 1, 2020 with early adoption permitted on or~~ after ~~February 1, 2019.~~December 15, 2020. We are currently evaluating the impact of this standard on our condensed consolidated financial statements.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ (ASU 2016-18), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for us beginning on February 1, 2018 and will be applied on a retrospective basis. Early adoption is permitted. We do not expect the adoption of this standard to have any material impact on our consolidated financial statements.

~~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. ASU 2017-09 will be effective for us beginning February 1, 2018 and will be applied prospectively. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.

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 1 - Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;


▪	~~Level I—Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;~~


▪	~~Level II~~—Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments; and


▪	~~Level III~~—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on our own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.

•Level 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 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.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 or quoted market prices for similar instruments.

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~~PURE STORAGE, INC.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~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 assigned levels within the valuation hierarchy at the end of ~~January 31, 2017~~fiscal 2020 and ~~October 31, 2017~~the third quarter of fiscal 2021 (in thousands):


	At the End of Fiscal 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash Equivalents		Marketable Securities		Restricted Cash
Level 1
Money market accounts	$	—	$	—	$	—	$	26,355	$	11,068	$	0	$	15,287
Level 2

U.S. government treasury notes	323,751		2,146		0		325,897		0		325,897		0
U.S. government agencies	53,930		317		(3)		54,244		0		54,244		0
Corporate debt securities	452,318		3,954		(1)		456,271		3,001		453,270		0
Foreign government bonds	14,994		147		0		15,141		0		15,141		0
Asset-backed securities	87,267		699		0		87,966		0		87,966		0
Total	$	932,260	$	7,263	$	(4)	$	965,874	$	14,069	$	936,518	$	15,287

As of 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 notes 148,298
22
(289 ) 148,031
13,226
134,805
—
U.S. government agencies 40,398
2
(159 ) 40,241
—
40,241
—
Corporate debt securities 185,701
242
(379 ) 185,564
—
185,564
—
Foreign government bonds 2,377
2
(3 ) 2,376
—
2,376
—
Total $ 376,774
$ 268
$ (830 ) $ 388,946
$ 13,226
$ 362,986
$ 12,734


	As of October 31, 2017																At the End of the Third Quarter of Fiscal 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash Equivalents		Marketable Securities		Restricted Cash			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash Equivalents		Marketable Securities		Restricted Cash
Level 1																Level 1
Money market accounts	$	—	$	—	$	—		$	14,763	$	—	$	—	$	14,763	Money market accounts	$	—	$	—	$	—	$	43,232	$	31,883	$	0	$	11,349
Level 2																Level 2
U.S. government treasury notes	144,297		6		(419		)	143,884		6,374		137,510		—		U.S. government treasury notes	346,860		3,819		(5)		350,674		0		350,674		0
U.S. government agencies	44,517		—		(205		)	44,312		—		44,312		—		U.S. government agencies	56,723		543		(1)		57,265		0		57,265		0
Corporate debt securities	187,616		209		(310		)	187,515		—		187,515		—		Corporate debt securities	414,234		4,986		(37)		419,183		0		419,183		0
Foreign government bonds																Foreign government bonds	20,497		348		(1)		20,844		0		20,844		0
Asset-backed securities																Asset-backed securities	88,534		1,219		(1)		89,752		0		89,752		0
Total	$	376,430	$	215	$	(934	)	$	390,474	$	6,374	$	369,337	$	14,763	Total	$	926,848	$	10,915	$	(45)	$	980,950	$	31,883	$	937,718	$	11,349

911

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands):


	As of October 31, 2017					At the End of the Third Quarter of Fiscal 2021
	Amortized Cost		Fair Value			Amortized Cost		Fair Value
Due within one year	$	173,537	$	173,413	Due within one year	$	360,525	$	362,473
Due in one to five years	196,519		195,924		Due in one to five years	566,323		575,245

Total	$	370,056	$	369,337	Total	$	926,848	$	937,718

We review the individual securities that have unrealized losses on a regular basis to evaluate whether or not any security has experienced and expect to experience credit losses which resulted in the decline in fair value. Based on our evaluation of available evidence, we concluded that the gross unrealized losses on our ~~marketable securities as~~investments at the end of ~~October 31, 2017~~fiscal 2020 and the third quarter of fiscal 2021 were temporary in nature. We do not intend to sell these investments and it is not more likely than not that we will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity.

The following table presents gross unrealized losses and fair values for those investments that were in a continuous unrealized loss asposition at the end of ~~October 31, 2017,~~fiscal 2020 and the third quarter of fiscal 2021, aggregated by investment category (in thousands):


	At the End of Fiscal 2020
	Less than 12 months				Greater than 12 months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. government treasury notes	$	0	$	0	$	1,000	$	0	$	1,000	$	0
U.S. government agencies	4,998		(3)		0		0		4,998		(3)
Corporate debt securities	9,691		(1)		0		0		9,691		(1)


Total	$	14,689	$	(4)	$	1,000	$	0	$	15,689	$	(4)

Less than 12 months Greater than 12 months Total

Fair
Value

Unrealized
Loss
Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
U.S. government treasury notes $ 122,530
$ (381 ) $ 3,965
$ (38 ) $ 126,495
$ (419 )
U.S. government agencies 31,914
(106 ) 12,398
(99 ) 44,312
(205 )
Corporate debt securities 81,288
(168 ) 24,941
(142 ) 106,229
(310 )
Total $ 235,732
$ (655 ) $ 41,304
$ (279 ) $ 277,036
$ (934 )


	At the End of the Third Quarter of Fiscal 2021
	Less than 12 months				Greater than 12 months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. government treasury notes	$	58,412	$	(5)	$	0	$	0	$	58,412	$	(5)
U.S. government agencies	2,999		(1)		0		0		2,999		(1)
Corporate debt securities	29,930		(37)		0		0		29,930		(37)
Foreign government bonds	3,234		(1)		0		0		3,234		(1)
Asset-backed securities	6,786		(1)		0		0		6,786		(1)
Total	$	101,361	$	(45)	$	0	$	0	$	101,361	$	(45)

Realized gains or losses on sale of marketable securities were not significant for all periods presented.

Fair Value Measurements of Other Financial Instruments

We also measure the fair value of our convertible senior notes (the Notes) on a quarterly basis for disclosure purposes. We consider the fair value of the Notes at the end of the third quarter of fiscal 2021 to be a Level 2 measurement due to its limited trading activity. Refer to Note 7 for the carrying amount and estimated fair value of our Notes at the end of the third quarter of fiscal 2021.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 based in Los Altos, California. The transaction costs associated with the acquisition were not material and expensed as incurred. The total purchase consideration for the acquisition of Portworx was $353.0 million, which consisted of the following (in thousands):


Cash	$	344,213
Fair value of stock options assumed	8,802
Total	$	353,015

We assumed certain unvested and outstanding stock options for Portworx's common stock. These stock options were converted into stock options for shares of our common stock. The fair value of the exchanged options determined using the Black-Scholes option pricing model was $26.8 million, of which $8.8 million attributable to services performed prior to the acquisition date was allocated to purchase consideration. The remaining fair value of $18.0 million was allocated to future services and will be expensed over the remaining service periods as stock-based compensation expense. In addition, we assumed restricted stock units (RSUs) outstanding under the 2020 Portworx Equity Incentive Plan with a fair value of $31.8 million that is being recognized as stock-based compensation expense over a four year vesting period.

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of the acquisition (in thousands):


	Amount		Estimated Useful Life
Goodwill	$	323,413
Identified intangible assets:
Developed technology	21,612		5 years
Customer relationships	6,116		7 years
Trade name	3,762		3 years
Cash	4,407
Net liabilities assumed	(6,295)
Total	$	353,015

Goodwill generated from this acquisition is primarily attributable to the assembled workforce and expected post-acquisition synergies from combining Portworx container data services with our data services platform to expand our capabilities to support Kubernetes and containers. Goodwill is 0t deductible for tax purposes. The preliminary fair values of developed technology, customer relationships and trade name were estimated 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 preliminary calculations and valuations of fair values assigned to assets acquired and liabilities assumed are based on management's estimates and assumptions which may be subject to change as we obtain additional information. The areas that remain preliminary relate to the fair values of the identified intangible assets acquired and deferred revenue assumed. We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

In addition, cash payments to certain former shareholders of Portworx totaling $32.2 million are being made over three years subject to continuous employment and are recognized as an operating expense. Of this amount, $11.9 million was deposited in escrow at the acquisition date and recorded as a deferred compensation asset that is included within other assets, non-current in the condensed consolidated balance sheets.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Note 4.5. Balance Sheet Components

Inventory

Inventory consists of the following (in thousands):

As of
January 31, 2017 As of
October 31, 2017
Raw materials $ 3,003
$ 5,926
Finished goods 20,495
31,282
Inventory $ 23,498
$ 37,208

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~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~


	At the End of
	Fiscal 2020		Third Quarter of Fiscal 2021
Raw materials	$	2,974	$	4,400
Finished goods	35,544		38,752
Inventory	$	38,518	$	43,152

Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):


								At the End of
	As of January 31, 2017			As of October 31, 2017				Fiscal 2020		Third Quarter of Fiscal 2021
Test equipment	$	105,955		$	135,497		Test equipment	$	205,555	$	231,406
Computer equipment and software	54,521			66,270			Computer equipment and software	141,387		173,253
Furniture and fixtures	4,494			5,337			Furniture and fixtures	8,324		8,842
Leasehold improvements	10,332			13,815			Leasehold improvements	40,356		44,976
Total property and equipment	175,302			220,919			Total property and equipment	395,622		458,477
Less: accumulated depreciation and amortization	(93,607		)	(136,655		)	Less: accumulated depreciation and amortization	(272,882)		(300,277)
Property and equipment, net	$	81,695		$	84,264		Property and equipment, net	$	122,740	$	158,200

Depreciation and amortization expense related to property and equipment was ~~$13.2~~$20.6 million and ~~$15.2~~$14.9 million for the ~~three months ended October 31, 2016~~third quarter of fiscal 2020 and ~~2017,~~2021, and ~~$34.9~~$60.3 million and ~~$44.4~~$41.1 million for the ~~nine months ended October 31, 2016~~first three quarters of fiscal 2020 and ~~2017.~~2021. The amount of internal-use software development costs capitalized during the third quarter and first three quarters was not material.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Intangible Assets, Net

Intangible assets, net consist of the following (in thousands):


								At the End of
								Fiscal 2020						Third Quarter of Fiscal 2021
	As of January 31, 2017			As of October 31, 2017				Gross Carrying Value		Accumulated Amortization		Net Carrying Amount		Gross Carrying Value		Accumulated Amortization		Net Carrying Amount
Technology patents	$	10,125		$	10,125		Technology patents	$	19,125	$	(8,933)	$	10,192	$	19,125	$	(11,025)	$	8,100
Accumulated amortization	(3,565		)	(4,693		)
Developed technology							Developed technology	56,100		(8,035)		48,065		77,712		(14,438)		63,274
Customer relationships							Customer relationships	0		0		0		6,116		(73)		6,043
Trade name							Trade name	0		0		0		3,762		(104)		3,658
Intangible assets, net	$	6,560		$	5,432		Intangible assets, net	$	75,225	$	(16,968)	$	58,257	$	106,715	$	(25,640)	$	81,075

Intangible assets amortization expense was ~~$376,000 for three months ended October 31, 2016 and 2017, and $1.0~~$2.6 million and ~~$1.1~~$3.3 million for the ~~nine months ended October 31, 2016~~third quarter of fiscal 2020 and ~~2017. The~~2021, and $6.5 million and $8.7 million for the first three quarters of fiscal 2020 and 2021. At the end of the third quarter of fiscal 2021, the weighted-average remaining ~~useful life of~~amortization period was 3.0 years for technology patents, ~~is 3.6 years. Due to the defensive nature~~5.1 years for developed technology, 6.9 years for customer relationships, and 2.9 years for trade name. We recorded amortization of ~~these~~(i) technology patents ~~the amortization expense is included~~ in general and administrative expenses due to their defensive nature, (ii) developed technology in cost of product revenue, and (iii) customer relationships and trade name in sales and marketing expenses in the condensed consolidated statements of operations.

AsAt the end of ~~October 31, 2017,~~the third quarter of fiscal 2021, future expected amortization expense for intangible assets ~~for each of the next five years~~ is as follows (in thousands):


Fiscal Years Ending	Estimated Future Amortization Expense
Remainder of 2021	$	4,313
2022	16,296
2023	15,750
2024	15,332
2025	14,496
Thereafter	14,888
Total	$	81,075

Goodwill

The change in the carrying amount of goodwill is as follows (in thousands):


	Amount
Balance at the end of fiscal 2020	$	37,584
Goodwill acquired	323,413
Balance at the end of the third quarter of fiscal 2021	$	360,997

Years Ending January 31,
Estimated
Future
Amortization
Expense
Remainder of 2018 $ 376
2019 1,504
2020 1,504
2021 1,504
2022 544
Total $ 5,432

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):


	At the End of
	Fiscal 2020		Third Quarter of Fiscal 2021
Taxes payable	$	9,012	$	4,750
Accrued marketing	7,679		11,836
Accrued travel and entertainment expenses	3,829		1,054
Acquisition consideration	6,149		5,704
Other accrued liabilities	20,554		24,595
Total accrued expenses and other liabilities	$	47,223	$	47,939

Note 6. Deferred Revenue and Commissions

Deferred Commissions

Deferred commissions consist of incremental costs paid to our sales force to obtain customer contracts. Deferred commissions related to product revenue are recognized upon transfer of control to customers and deferred commissions related to subscription services revenue are amortized over an expected useful life of six years. We determine the expected useful life based on an estimated benefit period by evaluating our technology development life cycle, expected customer relationship period and other factors. We classify deferred commissions as current and non-current on our condensed consolidated balance sheets based on the timing of when we expect to recognize the expense. Amortization of deferred commissions is included in sales and marketing expense in the condensed consolidated statements of operations.

Changes in total deferred commissions during the periods presented are as follows (in thousands):


	Third Quarter of Fiscal				First Three Quarters of Fiscal
	2020		2021		2020		2021
Beginning balance	$	118,568	$	144,687	$	114,973	$	139,204
Additions	34,071		36,234		82,381		96,530
Recognition of deferred commissions	(29,508)		(28,832)		(74,223)		(83,645)
Ending balance	$	123,131	$	152,089	$	123,131	$	152,089

Of the $152.1 million total deferred commissions balance at the end of the third quarter of fiscal 2021, we expect to recognize approximately 28% as commission expense over the next 12 months and the remainder thereafter.

There was 0 impairment related to capitalized commissions for the third quarter and first three quarters of fiscal 2020 and 2021.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of
January 31, 2017 As of
October 31, 2017
Sales and use tax payable $ 540
$ 1,256
Accrued professional fees 1,765
1,430
Accrued marketing 6,718
8,899
Accrued travel and entertainment expenses 2,235
4,112
Income tax payable 1,135
1,620
Other accrued liabilities 9,304
7,628
Total accrued expenses and other liabilities $ 21,697
$ 24,945
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 condensed consolidated balance sheet dates.

Changes in total deferred revenue during the periods presented are as follows (in thousands):


	Third Quarter of Fiscal				First Three Quarters of Fiscal
	2020		2021		2020		2021
Beginning balance	$	607,263	$	724,751	$	535,920	$	697,288
Additions	142,164		180,285		400,605		467,454
Recognition of deferred revenue	(106,229)		(142,272)		(293,327)		(401,978)
Ending balance	$	643,198	$	762,764	$	643,198	$	762,764

Revenue recognized during the third quarter of fiscal 2020 and 2021 from deferred revenue at the beginning of each respective period was $101.4 million and $121.9 million. Revenue recognized during the first three quarters of fiscal 2020 and 2021 from deferred revenue at the beginning of each respective period was $213.2 million and $285.0 million.

Remaining Performance Obligations

Total contracted but not recognized revenue was $1,010.4 million at the end of the third quarter of fiscal 2021. Contracted but not recognized revenue consists of both deferred revenue and non-cancelable amounts that are expected to be invoiced and recognized as revenue in future periods. The value of orders that are contracted but have not been fulfilled and that can be canceled by customers, are excluded from remaining performance obligations. Of the $1,010.4 million contracted but not recognized revenue at the end of the third quarter of fiscal 2021, we expect to recognize approximately 43% over the next 12 months, and the remainder thereafter.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 7. Debt

Convertible Senior Notes

In April 2018, we issued $575.0 million in principal amount of 0.125% convertible senior notes due 2023, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act and received proceeds of $562.1 million, after deducting the underwriters’ discounts and commissions. The Notes are governed by an indenture (the Indenture) between us, as the issuer, and U.S. Bank National Association, as trustee. The Notes are our senior unsecured obligations. The Indenture does not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our subsidiaries. The Notes mature on April 15, 2023 unless repurchased or redeemed by us or converted in accordance with their terms prior to the maturity date. Interest is payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2018.

The Notes are convertible for up to 21,884,155 shares of our common stock at an initial conversion rate of approximately 38.0594 shares of common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $26.27 per share of common stock, subject to adjustment. Holders of the Notes may surrender their Notes for conversion at their option at any time prior to the close of business on the business day immediately preceding October 15, 2022, only under the following circumstances:

•during any fiscal quarter commencing after the fiscal quarter ended on July 31, 2018 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the Notes on each applicable trading day;

•during the 5 business day period after any 5 consecutive trading day period (the measurement period), in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the Notes on each such trading day;

•if we call any or all of the Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or

•upon the occurrence of specified corporate events.

On or after October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time regardless of the foregoing circumstances. Upon conversion, holders will receive cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. We intend to settle the principal of the Notes in cash.

The conversion price will be subject to adjustment in some events. Following certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, we will increase the conversion rate for a holder who elects to convert its Notes in connection with such corporate event or during the related redemption period in certain circumstances. Additionally, upon the occurrence of a corporate event that constitutes a “fundamental change” per the Indenture, holders of the Notes may require us to repurchase for cash all or a portion of the Notes at a purchase price equal to 100% of the principal amount of the Notes plus accrued and unpaid contingent interest.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

We may not redeem the Notes prior to April 20, 2021. We may redeem for cash all or any portion of the Notes, at our option, on or after April 20, 2021 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending not more than 2 trading days immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.

Upon the issuance of the Notes, we recorded total debt issuance costs of $12.9 million, of which $9.8 million was allocated to the Notes and $3.1 million was allocated to additional paid-in capital.

The Notes consisted of the following (in thousands):


	At the End of
	Fiscal 2020		Third Quarter of Fiscal 2021
Liability:
Principal	$	575,000	$	575,000
Less: debt discount, net of amortization	(91,378)		(71,408)
Less: debt issuance costs, net of amortization	(6,615)		(5,170)
Net carrying amount of the Notes	$	477,007	$	498,422

Stockholders' equity recorded at issuance:
Allocated value of the conversion feature			$	136,333
Less: debt issuance costs			(3,068)
Additional paid-in capital			$	133,265

The total estimated fair value of the Notes at the end of the third quarter of fiscal 2021 was $564.6 million. The fair value was determined based on the closing trading price per $100 of the Notes as of the last day of trading for the period. 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 $16.10 on the last day of the third quarter of fiscal 2021, the if-converted value of the Notes of $352.3 million was less than its principal amount. At the end of the third quarter of fiscal 2021, the remaining term of the Notes is 29 months.

The following table sets forth total interest expense recognized related to the Notes for the third quarter and first three quarters of fiscal 2020 and 2021 (in thousands):


	Third Quarter of Fiscal						First Three Quarters of Fiscal
	2020			2021			2020			2021
Amortization of debt discount	$	6,431		$	6,799		$	18,824		$	19,970
Amortization of debt issuance costs	465			491			1,362			1,445
Total amortization of debt discount and debt issuance costs	6,896			7,290			20,186			21,415
Contractual interest expense	181			181			539			539
Total interest expense related to the Notes	$	7,077		$	7,471		$	20,725		$	21,954

Effective interest rate of the liability component	5.6		%	5.6		%	5.6		%	5.6		%

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

In connection with the offering of the Notes, we paid $64.6 million to enter into capped call transactions with certain of the underwriters and their affiliates (the Capped Calls), whereby we have the option to purchase a total of 21,884,155 shares of our common stock upon any conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of the Notes, as the case may be, with such reduction or offset subject to a cap initially equal to $39.66 per share (which represents a premium of 100% over the last reported sales price of our common stock on April 4, 2018), subject to certain adjustments (the Cap Price). The cost of the Capped Calls was accounted for as a reduction to additional paid-in capital on the condensed consolidated balance sheet. The Capped Calls are intended to reduce or offset potential dilution of our common stock upon any conversion of the Notes, subject to a cap based on the Cap Price.

Impact on Earnings Per Share

The Notes will not impact our diluted earnings per share until the average market price of our common stock exceeds the conversion price of $26.27 per share, as we intend to settle the principal amount of the Notes in cash upon conversion. We are required under the treasury stock method to compute the potentially dilutive shares of common stock related to the Notes for periods we report net income. However, upon conversion, there will be no economic dilution from the Notes until the average market price of our common stock exceeds the Cap Price of $39.66 per share, as exercise of the Capped Calls offsets any dilution from the Notes from the conversion price up to the Cap Price. Capped Calls are excluded from the calculation of diluted earnings per share, as they would be anti-dilutive under the treasury stock method.

Revolving Credit Facility

On August 24, 2020, we entered into a Credit Agreement with a consortium of financial institutions and lenders that provides for a five-year, senior secured revolving credit facility of $300.0 million (Credit Facility). Proceeds from the Credit Facility may be used for general corporate purposes and working capital. The Credit Facility expires, absent default or early termination by us, on the earlier of (i) August 24, 2025 or (ii) 91 days prior to the stated maturity of the Notes unless, on such date and each subsequent day until the Notes are paid in full, the sum of our cash, cash equivalents and marketable securities and the aggregate unused commitments then available to us exceed $625.0 million.

The annual interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.50% to 1.25% or LIBOR (based on one, three or six-month interest periods), subject to a floor of 0%, plus a margin ranging from 1.50% to 2.25%. Interest on revolving loans is payable quarterly in arrears with respect to loans based on the base rate and at the end of an interest period in the case of loans based on LIBOR (or at each three-month interval if the interest period is longer than three months). We are also required to pay a commitment fee on the unused portion of the commitments ranging from 0.25% to 0.40% per annum, payable quarterly in arrears that commenced on September 30, 2020.

In September 2020, we drew down $250.0 million under the Credit Facility which remained outstanding at the end of the third quarter of fiscal 2021. The outstanding loan bore interest at the one-month LIBOR of approximately 1.65% resulting in interest expense of $0.3 million during the third quarter of fiscal 2021.

Loans under the Credit Facility are collateralized by substantially all of our assets and subject to certain restrictions and 2 financial ratios measured as of the last day of each fiscal quarter, commencing with the fiscal quarter ending January 31, 2021. We were in compliance with all covenants under the Credit Facility at the end of the third quarter of fiscal 2021.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 5.8. Commitments and Contingencies

~~Operating Leases~~

During the nine months ended October 31, 2017, we extended the lease term of an existing office facility with total additional lease obligations of approximately $2.0 million with the lease expiring through March 2019. Additionally, in August 2017, we entered into a seven-year term 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.

Letters of Credit

~~In connection with~~At the ~~lease executed in August 2017, we issued a letter~~end of ~~credit~~fiscal 2020 and the third quarter of ~~$2.6 million. As of January 31, 2017 and October 31, 2017,~~fiscal 2021, we had outstanding letters of credit in the aggregate amount of ~~$7.7~~$11.5 million and ~~$9.6~~$7.5 million, in connection with our facility leases. In September 2020, we executed an amendment that reduced our letter of credit related to our headquarters lease by $3.6 million. The letters of credit are collateralized by restricted cash ~~in the same amount~~ and mature aton various dates through August ~~2026.~~2029.

Legal Matters

~~In September 2016, a purported securities class action entitled~~ ~~Ramsay v. Pure Storage, Inc., et al.~~ was filed in the Superior Court of the State of California (San Mateo County) against us and certain of our officers, directors, investors and underwriters for our initial public offering (IPO), asserting claims under sections 11, 12 and 15 of the Securities Act. Substantially identical lawsuits were subsequently filed in the same Court, bringing the same claims against the same defendants. In October 2016, these actions were consolidated under the caption ~~In re Pure Storage, Inc. Shareholder Litigation~~. In January 2017 and May 2017, the defendants filed demurrers (motions to dismiss) to plaintiffs' complaints on the grounds that the plaintiffs failed to state a claim under the Securities Act, and both times, in April 2017 and August 2017, the Court sustained the demurrers in defendants' favor as to all claims with leave to amend. The plaintiffs subsequently agreed to dismiss the lawsuit entirely, with no amendment or appeal, and in October 2017, the Court dismissed the consolidated action without prejudice.

From time to time, we have become involved in claims and other legal matters arising in the normal course of business. We investigate these claims as they arise. Although claims are inherently unpredictable, we currently are not aware of any matters that ~~may~~we expect to have a material adverse effect on our business, financial position, results of operations or cash flows. Accordingly, we have not recorded any loss contingency on our condensed consolidated balance sheet asat the end of ~~October 31, 2017.~~the third quarter of fiscal 2021.

Indemnification

Our arrangements generally include certain provisions for indemnifying customers against liabilities if our products or services infringe a third party’s intellectual property rights. Other guarantees or indemnification

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~~PURE STORAGE, INC.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

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 condensed consolidated financial statements. In addition, we indemnify our officers, directors and certain key employees while they are serving in good faith in their respective capacities. To date, there have been no claims under any indemnification provisions.

Note 9. Leases

We lease office facilities under non-cancelable operating lease agreements expiring through July 2032. Our lease agreements do not contain any material residual value guarantees or restrictive covenants. During the third quarter of fiscal 2021, we executed an early renewal that modified an existing data center lease that resulted in total incremental undiscounted cash flows of $27.3 million. The components of lease costs during the periods presented were as follows (in thousands):


	Third Quarter of Fiscal				First Three Quarters of Fiscal
	2020		2021		2020		2021
Fixed operating lease cost	$	8,509	$	9,494	$	25,220	$	27,775
Variable lease cost (1)	2,122		2,455		6,464		7,397
Short-term lease cost (12 months or less)	1,412		1,502		3,757		4,568
Total lease cost	$	12,043	$	13,451	$	35,441	$	39,740

(1) Variable lease cost for the third quarter and first three quartersof fiscal 2020 and 2021 predominantly included common area maintenance charges.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

At the end of the third quarter of fiscal 2021, the weighted-average remaining lease term is 5.4 years and the weighted-average discount rate is 5.91%. Future lease payments under our non-cancelable operating leases at the end of the third quarter of fiscal 2021 were as follows (in thousands):


Fiscal Years Ending	Operating Leases
The remainder of 2021	$	9,942
2022	38,880
2023	35,260
2024	29,983
2025	26,660
Thereafter	43,602
Total future lease payments	184,327
Less: imputed interest	(29,043)
Present value of lease liabilities	$	155,284

Note 10. Restructuring and Other

During the first three quarters of fiscal 2021, we ceased use of certain leased facilities. The unamortized costs of $7.5 million relating to operating lease right-of-use assets and leasehold improvements for these leases were expensed.

During the first three quarters of fiscal 2021, we effected workforce realignment plans to streamline our operations and recognized $6.6 million of restructuring costs related to one-time involuntary termination benefit costs. The restructuring charges are included in restructuring and other expenses in our condensed consolidated statement of operations.

During the first three quarters of fiscal 2021, we incurred incremental costs of $9.8 million directly related to the COVID-19 pandemic. These costs primarily included the write-off of marketing commitments no longer deemed to have value for the remainder of fiscal 2021, estimated non-recoverable costs for internal events that could not be held, and hazard related premiums to support manufacturing operations. Of these costs, $8.9 million is included in restructuring and other expenses and $0.9 million is included in cost of revenue in our consolidated statements of operations for the first three quarters of fiscal 2021.

Note 6.11. Stockholders’ Equity

Preferred Stock

We have 20,000,000 authorized shares of undesignated preferred stock, the rights, preferences and privileges of which may be designated from time to time by our board of directors. AsAt the end of ~~October 31, 2017,~~the third quarter of fiscal 2021, there were no0 shares of preferred stock issued or outstanding.

Class A and Class B Common Stock

We have ~~two~~2 classes of authorized common stock, Class A common stock, which we refer to as our "common stock", and Class B common stock. AsAt the end of ~~October 31, 2017,~~the third quarter of fiscal 2021, we had 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 ~~October 31, 2017, 109,177,866~~the third quarter of fiscal 2021, 272,039,767 shares of Class A common stock were issued and ~~outstanding~~outstanding.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Share Repurchase Program

In August 2019, our board of directors approved the repurchase of up to $150.0 million of our common stock. During the third quarter of fiscal 2021, we repurchased and ~~106,837,859~~retired 1,360,000 shares of ~~Class B~~ common stock ~~were issued~~at an average purchase price of $15.72 per share for an aggregate repurchase price of $21.4 million. During the first three quarters of fiscal 2021, we repurchased and ~~outstanding.~~retired 8,496,191 shares of common stock at an average purchase price of $13.11 per share for an aggregate repurchase price of approximately $111.4 million. At the end of the third quarter of fiscal 2021, $23.6 million remained available for future share repurchases under our current repurchase authorization.

Note 7.12. Equity Incentive Plans

Equity Incentive Plans

We maintain ~~two~~2 equity incentive plans: the 2009 Equity Incentive Plan (the 2009 Plan) and the 2015 Equity Incentive Plan (the 2015 Plan). ~~In August~~The 2015 ~~our board of directors adopted, and in September 2015 our stockholders approved, the 2015~~ Plan ~~which became effective in connection with our initial public offering (IPO) and~~ serves as the successor to ~~the~~our 2009 ~~Plan. The 2015~~ Plan and provides for grants 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. We ceased grants of new awards under the 2009 Plan after the effective date of the 2015 Plan, and no new grants will be made from the 2009 Plan. Outstanding awards granted under the 2009 Plan will remain subject to the terms of the 2009 Plan and applicable award agreements, until such outstanding awards that are stock options are exercised, terminated or expired by their terms.

We initially reserved 27,000,000 shares of our Class A common stock for issuance under our 2015 Plan. The number of shares reserved for issuance under our 2015 Plan increases automatically on the first day of February of each year through 2025, in an amount equal to 5% of the total number of shares of our capital stock outstanding as of the immediately preceding January 31.

~~The exercise price of stock options will generally not be less than 100% of the fair market value of our common stock on the date of grant, as determined by our board of directors.~~ Our equity awards generally vest over a two to four year period and expire no later than ten years from the date of grant.

We net-share settle equity awards held 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 reduction to additional paid-in capital and reflected as a financing activity in our condensed consolidated statements of cash flows.

In conjunction with the Portworx acquisition, we assumed (i) certain options to purchase common stock outstanding under Portworx's 2014 Stock Incentive Plan and (ii) RSUs outstanding under the 2020 Portworx Equity Incentive Plan (collectively, the "Assumed Equity Awards"). The Assumed Equity Awards were converted into corresponding awards for shares of our common stock and retained substantially all of the terms and conditions under which they were granted. Approximately 3.9 million shares are reserved for issuance in connection with the Assumed Equity Awards. Refer to Note 4 for further information on the equity awards assumed resulting from the Portworx acquisition.

2015 Amended and Restated Employee Stock Purchase Plan

~~In August 2015,~~Under our ~~board of directors adopted~~Amended and ~~our stockholders approved, the~~Restated 2015 Employee Stock Purchase Plan (2015 ESPP), ~~which became effective in connection with~~ our ~~IPO. A total~~board of ~~3,500,000~~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 ~~Class A~~ common stock ~~was initially reserved for issuance~~which may be purchased under the ~~2015 ESPP.~~plan. The number of shares reserved for issuance under our 2015 ESPP increases automatically on the first day of February of each year through 2025, in an amount equal to the lesser of (i) 1% of the total number of shares of our capital stock outstanding as of the immediately preceding January 31, and (ii) 3,500,000 shares of Class A common stock.

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~~PURE STORAGE, INC.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~The 2015 ESPP allows~~current offering terms allow eligible employees to purchase shares of our ~~Class A~~ common stock at a discount through payroll deductions ~~(or other payroll contributions)~~ of up to 30% of their eligible compensation, subject to a cap of 3,000 shares on any purchase date, a dollar cap of $7,500 per purchase period, or $25,000 in any calendar year (as determined under applicable tax rules). The ~~2015 ESPP provides~~current terms also allow for ~~24 month~~a 24-month offering ~~periods~~period beginning March 16th and September 16th of each year, ~~and~~with each offering period ~~consists~~consisting of ~~four six-month~~4 6 month purchase periods, subject to a reset provision. IfFurther, currently, on each purchase date, eligible employees may purchase our common stock at a price per share equal to 85% of the lesser of the fair market value of our common stock (1) on the first trading day of the applicable offering period or (2) the purchase date.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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~~, resulting in a ~~price per share equal~~modification charge 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. Our closing stock price on~~be recognized over the new offering ~~date~~period. During the first quarter of ~~March 16, 2017~~fiscal 2021, there was ~~lower than the closing stock prices for both the offerings that started on March 16, 2016 and September 16, 2016, which triggered~~ an ESPP reset ~~for those offerings.~~ ~~The ESPP reset~~that resulted in a modification charge of ~~approximately $9.0~~$23.8 million, which is being recognized over the new ~~24-month~~ offering period ending on March 15, ~~2019. In addition, the original remaining unamortized stock-based compensation expense for each of the offerings is being recognized over the same 24-month offering period ending on March 15, 2019.~~2022.

~~We recognized stock-based~~Stock-based compensation expense related to our 2015 ESPP ~~of $4.8~~was $4.3 million and ~~$4.7~~$6.8 million during the ~~three months ended October 31, 2016~~third quarter of fiscal 2020 and ~~2017,~~2021, and ~~$13.4~~$20.0 million and ~~$12.6~~$18.8 million during the ~~nine months ended October 31, 2016~~first three quarters of fiscal 2020 and ~~2017. As~~2021. At the end of ~~October 31, 2017, there was $32.2 million~~the third quarter of fiscal 2021, total unrecognized stock-based compensation ~~expense~~cost related to our 2015 ESPP was $40.9 million, which is expected to be recognized over a weighted-average period of ~~approximately~~ 1.4 years.

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 (In Years)

Aggregate
Intrinsic
Value (in thousands)
Balance as of January 31, 2017 56,840,189
$ 7.15
7.0 $ 315,502
Options granted 1,000,000
14.92

Options exercised (5,502,179 ) 2.86

Options forfeited/cancelled (2,362,891 ) 14.41

Balance as of October 31, 2017 49,975,119
$ 7.43
6.4 $ 457,252
Vested and exercisable as of October 31, 2017 30,500,061
$ 4.84
5.9 $ 355,871


	Options Outstanding
	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value (in thousands)
Balance at the end of fiscal 2020	26,822,243	$	8.97	3.9	$	237,803
Options assumed in an acquisition	1,891,349	1.75
Options exercised	(4,990,458)	5.14
Options forfeited	(344,685)	16.16
Balance at the end of the third quarter of fiscal 2021	23,378,449	$	9.10	4.3	$	171,868
Vested and exercisable at the end of the third quarter of fiscal 2021	20,177,814	$	9.28	3.9	$	144,373

The aggregate intrinsic value of options vested and exercisable asat the end of ~~October 31, 2017~~the third quarter of fiscal 2021 is calculated based on the difference between the exercise price and the closing price of ~~$16.43~~$16.10 of our ~~Class A~~ common stock on ~~October 31, 2017.~~

the last day of the third quarter of fiscal 2021.

The ~~weighted average~~weighted-average grant date fair value of ~~the~~ options ~~granted~~assumed was $14.16 per share during the ~~nine months ended October 31, 2017~~third quarter and first three quarters of fiscal 2021.

Stock-based compensation expense recognized related to stock options was ~~$5.58.~~$2.6 million and $1.6 million during the third quarter of fiscal 2020 and 2021, and $12.6 million and $5.7 million during the first three quarters of fiscal 2020 and 2021.

AsAt the end of ~~October 31, 2017,~~the third quarter of fiscal 2021, total unrecognized employee compensation cost related to outstanding options was ~~$89.3~~$21.6 million, which is expected to be recognized over a weighted-average period of ~~approximately 2.7~~2.3 years.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Restricted Stock Units~~RSUs and PRSUs

A summary of the ~~restricted stock unit~~RSU and PRSU activity under our ~~2015 Plan~~equity incentive plans and related information is as follows:


	Number of RSUs and PRSUs Outstanding	Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)
Unvested balance at the end of fiscal 2020	25,434,597	$	18.72	$	452,736
Granted	16,650,722	11.73
Assumed in an acquisition	2,016,061	15.79
Vested	(8,445,201)	16.95
Forfeited	(2,308,191)	16.94

Unvested balance at the end of the third quarter of fiscal 2021	33,347,988	$	15.62	$	536,903

Number of Restricted Stock Units Outstanding
Weighted-
Average
Grant Date
Fair Value
Aggregate
Intrinsic
Value (in thousands)
Unvested Balance as of January 31, 2017 8,783,024
$ 13.06
$ 99,863
Granted 14,315,164
11.65

Vested (3,627,367 ) 12.33

Forfeited (1,292,330 ) 11.75

Unvested Balance as of October 31, 2017 18,178,491
$ 12.21
$ 298,674

AsDuring the third quarter and first three quarters of ~~October 31, 2017, total unrecognized employee compensation cost related to unvested restricted stock units was $191.6 million, which is expected to be recognized over~~fiscal 2021, we issued 179,616 and 1,631,512 shares of performance RSUs (PRSUs), at a ~~weighted-average period~~target percentage of ~~approximately 2.6 years.~~

~~In March 2017, we granted 750,000 performance stock units (net of 77,000 canceled units during the nine months ended October 31, 2017)~~100%, with both performance and service vesting conditions payable in common ~~shares~~stock, from 0% to ~~150%~~125% of the target number granted, contingent upon the degree to which the performance condition is met. ~~In August 2017, we granted 464,744 performance stock units with both performance and service vesting conditions payable in common~~Any portion of shares ~~from 0% to 120% of the target number granted, contingent upon the degree to which the performance condition is met.~~

~~For the performance stock units granted in March 2017, management determined it is probable~~ that ~~the performance condition~~are not earned will be ~~satisfied and accordingly, we began recognizing stock-based compensation expense during the three months ended April 30, 2017.~~ canceled.

Stock-based compensation expense ~~for these performance stock units~~recognized related to RSUs and PRSUs was ~~$1.3~~$41.0 million and ~~$2.9~~$50.4 million ~~for~~during the third quarter of fiscal 2020 and 2021, and $118.7 million and $147.4 million during the first three quarters of fiscal 2020 and ~~nine months ended October 31, 2017,~~2021. At the end of the third quarter of fiscal 2021, total unrecognized employee compensation cost related to unvested RSUs was $476.6 million, which is expected to be recognized ~~on an accelerated attribution method.~~over a weighted-average period of 2.8 years.

Restricted Stock

~~The performance condition for~~A summary of the ~~performance~~restricted stock ~~units granted in August 2017 will be determined at a future date~~activity under our 2015 Plan and ~~accordingly, there~~related information is ~~no grant date for these awards from an accounting perspective and grant date fair value is~~as follows:


	Number of Restricted Stock Outstanding	Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)
Unvested balance at the end of fiscal 2020	2,127,206	$	19.58	$	37,684

Vested	(1,031,540)	19.60
Forfeited/canceled	(316,965)	20.38

Unvested balance at the end of the third quarter of fiscal 2021	778,701	$	19.23	$	12,537

All unvested shares of restricted stock are subject to cancellation to the extent vesting conditions are not ~~considered in the calculation of weighted-average grant date fair value in the table above. No stock-based~~met. Stock-based compensation expense recognized related to restricted stock was $4.4 million and $0.8 million during the third quarter of fiscal 2020 and 2021, and $19.2 million and $7.9 million during the first three quarters of fiscal 2020 and 2021. At the end of the third quarter of fiscal 2021, total unrecognized employee compensation cost related to unvested restricted stock was $4.4 million, which is expected to be recognized ~~for these performance awards in the three and nine months ended October 31, 2017.~~over a weighted-average period of 1.2 years.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Stock-Based Compensation Expense

The following table summarizes the components of stock-based compensation expense recognized in the condensed consolidated statements of operations (in thousands):

Three Months Ended
October 31, Nine Months Ended
October 31,
2016 2017 2016 2017
Cost of revenue—product $ 138
$ 143
$ 425
$ 898
Cost of revenue—support 1,178
2,422
3,982
6,441
Research and development 15,241
18,073
40,875
51,632
Sales and marketing 8,468
12,104
24,719
34,169
General and administrative 3,210
6,121
9,128
14,780
Total stock-based compensation expense $ 28,235
$ 38,863
$ 79,129
$ 107,920

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~~PURE STORAGE, INC.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~


	Third Quarter of Fiscal				First Three Quarters of Fiscal
	2020		2021		2020		2021
Cost of revenue—product	$	912	$	1,027	$	2,843	$	3,013
Cost of revenue—subscription services	3,517		3,883		11,101		10,961
Research and development	27,827		29,220		85,180		87,770
Sales and marketing	16,802		14,898		51,171		48,018
General and administrative	5,171		10,581		24,495		29,993
Total stock-based compensation expense	$	54,229	$	59,609	$	174,790	$	179,755

The tax benefit related to stock-based compensation expense for all periods presented was not material.

Note 8.13. Net Loss per Share Attributable to Common Stockholders

Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. Diluted net loss per share attributable to common stockholders is computed by giving effect to all potentially dilutive common stock equivalents, including our outstanding ~~for the period. For purposes of this calculation,~~ stock options, common stock related to unvested RSUs and PRSUs, cancelable shares from restricted stock, ~~awards, repurchasable shares from early exercised stock options,~~our Notes to the extent dilutive, and ~~shares subject to ESPP withholding are considered to be~~ common stock issuable pursuant to the ESPP. These potentially dilutive common stock equivalents ~~but~~ have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive.

The rights, including the liquidation and dividend rights, of the holders of our Class A and Class B common stock are identical, except with respect to voting. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis. We did not present dilutive net loss per share on an if-converted basis because the impact was not dilutive.

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):


	Third Quarter of Fiscal				First Three Quarters of Fiscal
	2020		2021		2020		2021
Net loss	$	(29,982)	$	(74,222)	$	(196,336)	$	(229,783)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	255,047		269,144		250,618		265,626
Net loss per share attributable to common stockholders, basic and diluted	$	(0.12)	$	(0.28)	$	(0.78)	$	(0.87)

Three Months Ended
October 31, Nine Months Ended
October 31,
2016 2017 2016 2017
Net loss $ (78,813 ) $ (41,649 ) $ (202,151 ) $ (165,724 )
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 195,807
213,274
192,637
209,456
Net loss per share attributable to common stockholders, basic and diluted $ (0.40 ) $ (0.20 ) $ (1.05 ) $ (0.79 )

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (in thousands):


	Third Quarter of Fiscal		First Three Quarters of Fiscal
	2020	2021	2020	2021
Stock options to purchase common stock	30,769	22,687	32,150	23,884
Unvested RSUs and PRSUs	24,251	32,802	24,544	31,743
Restricted stock subject to cancellation	2,732	964	2,762	1,301
Shares related to convertible senior notes	21,884	21,884	21,884	21,884
Shares issuable pursuant to the ESPP	571	1,080	571	1,080

Total	80,207	79,417	81,911	79,892

Three Months Ended
October 31, Nine Months Ended
October 31,
2016 2017 2016 2017
Stock options to purchase common stock 62,874
51,685
65,594
53,786
Restricted stock units 6,342
17,201
4,155
14,913
Early exercised stock options 2,246
196
2,451
287
Employee stock purchase plan 434
585
434
585
Total 71,896
69,667
72,634
69,571

Note 9.14. Other Income (Expense), Net

Other income (expense), net consists of the following (in thousands):


	Third Quarter of Fiscal				First Three Quarters of Fiscal
	2020		2021		2020		2021
Interest income(1)	$	6,770	$	3,728	$	20,376	$	14,383
Interest expense(2)	(7,077)		(7,989)		(20,725)		(22,573)
Foreign currency transactions gains (losses)	97		(699)		(2,329)		(277)
Other income	219		73		219		1,767
Total other income (expense), net	$	9	$	(4,887)	$	(2,459)	$	(6,700)

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

(2)Interest expense includes non-cash interest expense related to amortization of the debt discount and debt issuance costs of our debt and the contractual interest expense related to our debt.

Note 15. Income Taxes

Our provision for income ~~taxes was~~tax primarily ~~due to~~reflects taxes on international operations and state income taxes. The difference between the ~~provision for~~ income ~~taxes~~tax provision that would be derived by applying the statutory rate to our loss before income taxes and the ~~provision for~~ income ~~taxes~~tax provision recorded was primarily attributable to changes in our valuation

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allowance, ~~non-deductible~~ stock-based compensation expense and research and development credits.

At the ~~tax rate differential between~~end of the ~~U.S. and foreign countries.~~

Asthird quarter of ~~October 31, 2017,~~fiscal 2021, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for ~~the year ended January 31, 2017.~~fiscal 2020.

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 group~~. Our chief operating decision maker reviews financial information presented on a consolidated basis ~~for~~for purposes of allocating resources and evaluating financial performance. We have ~~one~~1 business activity and there are no0 segment managers who are held accountable for operations or operating results. Accordingly, we have a single reportable segment.

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PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Disaggregation of Revenue

The following table ~~sets forth~~depicts 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):


	Third Quarter of Fiscal				First Three Quarters of Fiscal
	2020		2021		2020		2021

United States	$	312,010	$	302,091	$	835,545	$	847,916
Rest of the world	116,399		108,528		315,891		333,545
Total revenue	$	428,409	$	410,619	$	1,151,436	$	1,181,461

Three Months Ended
October 31, Nine Months Ended
October 31,
2016 2017 2016 2017
United States $ 152,134
$ 192,977
$ 385,464
$ 504,937
Rest of the world 44,822
84,697
114,653
179,829
Total revenue $ 196,956
$ 277,674
$ 500,117
$ 684,766

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):


						At the End of
						Fiscal 2020		Third Quarter of Fiscal 2021
	As of January 31, 2017		As of October 31, 2017
United States	$	78,692	$	80,387	United States	$	113,942	$	146,945
Rest of the world	3,003		3,877		Rest of the world	8,798		11,255
Total long-lived assets	$	81,695	$	84,264	Total long-lived assets	$	122,740	$	158,200

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with the (1) unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (2) ~~the~~ audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended ~~January 31, 2017.~~February 2, 2020. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, impacts on our business and general economic conditions due to the COVID-19 pandemic, those identified herein, and those discussed in the section titled “Risk Factors”, set forth in Part II, Item 1A of this Form 10-Q and in our other SEC filings. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Our fiscal year end is the first Sunday after January ~~31.~~30.

Overview

~~We are building the data platform for the cloud era. As the demand for data~~Data is foundational to our customers' digital transformation and ~~the need for real-time analytics increase,~~ we are focused on delivering ~~software-defined all-flash~~innovative and disruptive technology and data storage solutions that ~~are uniquely fast and cloud-capable for customers, enabling~~enable customers to ~~put~~maximize the value of their data. We started with the vision of making flash storage available to enterprise organizations everywhere and established an entirely new customer experience including our innovative Evergreen Storage subscription that radically simplified storage ownership and reduced total cost of ownership for our customers.

Our solutions serve data workloads on-premise, in the cloud, or hybrid environments and include mission-critical production, test/development, analytics, disaster recovery, and backup/recovery.

Our Modern Data Experience vision begins with our portfolio of products and subscription services that is transforming and modernizing storage operations for our customers. Our Modern Data Experience vision extends to ~~work for their businesses. Our~~an innovative and highly-integrated data platform replaces storage systems designed for mechanical disk with all-flash systems optimized end-to-end for solid-state memory. At the same time, our innovative business model replaces the traditional forklift upgrade cycle with an ~~Evergreen Storage~~ ~~model~~ of products and subscription services, consisting of Cloud Data Infrastructure (integrated hardware and software ~~innovation, support~~appliances which run in on-premise data centers), Cloud Data Services (software services which run natively in major public cloud infrastructures), and ~~maintenance.~~Cloud Data Management (software hosted data management services to manage our entire platform).The Modern Data Experience is based on four key pillars: Fast Matters, Cloud Everywhere, Simple is Smart, and Subscription to Innovation.

Fast Matters- Speed is critical to customer experience and engagement, and therefore, we design our high-performance solutions to allow applications, analytics, and development to move and execute quickly in order for our customers to make impactful decisions. We ~~were incorporated in 2009~~redefine fast by delivering low-latency, high bandwidth, and maximum density technologies. For example, accelerating core applications enables rapid response and deployment which reduces costs while increasing enterprise resilience.

Cloud Everywhere- Providing our customers the opportunity to transform their data management to a full or hybrid cloud model. This model reduces costs and adds agility through an API-defined platform, a consistent on-premise and public cloud experience, seamless data mobility and comprehensive data protection. This multi-cloud environment delivers increased flexibility, fast global recovery, and minimized application downtime through automated response.

Simple is Smart- From day one, our storage solutions are designed to be simple, allowing our customers to reduce time spent managing the storage platform including issue resolution. Our storage dashboards present real-time and intuitive platform analytics; meanwhile, AI-based optimization proactively analyzes future workloads and global network issues to limit unforeseen infrastructure problems.

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Subscription to Innovation- Delivering a subscription with ~~a vision to define~~low total cost of ownership, eliminating the ~~next generation of enterprise storage by pioneering the all-flash array category~~need for forklift hardware replacements, and ~~innovating a customer-centric business model. We deliver our platform as our flash-optimized software~~providing customizable capacity 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 which can be managed from anywhere and supported by our~~ ~~Evergreen Storage~~ ~~business model.~~

Since launching in May 2012, our customer base has grown to over 4,000 customers, including over 25% 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, automobile, 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 user customer represented 10% or more of revenuemobility, whether on-premise, in the ~~three and nine months ended October 31, 2016 and 2017. One channel partner represented 10%~~cloud or ~~more of revenue in the three and nine months ended October 31, 2017.~~

We have grown rapidly in recent periods, with revenue for the three months ended October 31, 2016 and 2017 of $197.0 million and $277.7 million, representing year-over-year growth of 41%. For the nine months ended October 31, 2016 and 2017, our revenue was $500.1 million and $684.8 million, representing year-over-year revenue growth rate of 37%.hybrid cloud. We expect ~~that~~ our revenue growth rate may 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,subscription services sales and marketing, infrastructure and operations, and have incurred net losses in each period since our inception, including net losses of $78.8 million and $41.6 million for the three months ended October 31, 2016 and 2017, and $202.2 million and $165.7 million for the nine months ended October 31, 2016 and 2017.

Since our founding, we have invested heavily in growing our business. Our headcount increased from over 1,700 employees as of January 31, 2017, and to over 2,000 employees as of October 31, 2017. We intend to continue to ~~invest in our research and development organization to extend our technology leadership, enhance the functionality~~grow faster than sales 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.

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We also intend to continue to invest and expand our sales and marketing functions and channel programs, including expanding our global network of channel partners and carrying out associated marketing activities in key geographies. By investing in sales and technical training, demand generation and partner programs, we believe we can enable many of our partners to independently identify, qualify, sell and upgrade customers, with limited involvement from us.

In addition, we intend to expand and continue to invest in our international operations, which we believe will be an important factor in our continued growth. However, our international operations are relatively new and we have limited experience operating in foreign jurisdictions. Our revenue generated from customers outside of the United States was 23% of our total revenue for the year ended January 31, 2017 and 26% for the nine months ended October 31, 2017.

Asintegrated appliances as a result of our ~~strategy~~customers choosing to ~~increase~~consume our ~~investments~~technologies as a service including Evergreen Storage, and our unified subscription including Pure as-a-Service and Cloud Block Store.

Portworx Acquisition

In October 2020, we completed our acquisition of Portworx Inc. (Portworx), a privately-held container storage company that provides a Kubernetes data services platform that customers use to deploy cloud native applications in ~~research~~any hybrid or multi-cloud architecture. By combining Portworx container data services, which includes storage, data protection, data security and development, sales, marketing, support and international expansion, we expect to 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.

~~Recent Development~~

On August 22, 2017, our board of directors appointed Charles H. Giancarlo, as the new chief executive officer and a member on our board of directors, effective immediately. On August 22, 2017, Scott Dietzen resigned from his position as chief executive officer and was appointed as the chairman of our board of directors.

~~In April 2017, we launched~~ ~~FlashArray//X, our first all-NVMe, enterprise-class all-flash array, on directed basis.~~ ~~FlashArray//X~~ ~~became generally available in September 2017.~~

~~Our Business Model~~

~~We sell~~disaster recovery/backup, with our data ~~platform predominantly through a high touch, channel-fulfilled model. Our sales force works collaboratively with our channel partners~~services platforms 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 andPure Service Orchestrator software, this acquisition further 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~~Modern Data Experience 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. O~~ne channel partner represented 10% or more of revenue for the nine months ended October 31, 2016 and 2017.~~

Our business model enables customers to broadly adopt flash for a wide variety of workloads in their data centers, 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 software functionality is included in the base purchase price, and the customer is entitled to updates and new features 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 6 years. By keeping our business model simple and efficient, we allow customers to buy more products and expand their footprint more easily while allowing us to reduce our sales and marketing costs.

~~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 and eligible 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 multiple-element arrangement

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~~accounting guidance, 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. Of all the customers that have been with us for at least 12 months as of October 31, 2017, our top 25 customers on average spent approximately $11 on new product purchases for every $1 of initial product purchase, 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 in the cloud era -- collecting vast amounts of data, analyzing it rapidly, discovering new insights, and ultimately delivering new innovations and experiences otherwise impossible without data. We continue to make significant investments in our business to develop and deliver a data platform to support today and tomorrow’s volume and velocity of data and to ensure the performance required for new data-driven applications, while substantially reducing costs and complexity for our customers. Our ability to deliver ~~new~~comprehensive, multi-cloud data services to support Kubernetes and ~~enhanced products~~containers.

Executive Officers

Paul Mountford will ~~be a key factor in capturing mindshare with~~step down as our ~~target customers to become their data platform of choice.~~

~~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~~Chief Operating Officer at the data center at a rapid rate, and our success depends on the adoption 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 demand for all-flash storage will rise.

~~Adding New Customers and Expanding Sales to Our Existing Customer Base~~

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

~~Seasonality in our Business Operations~~

~~Consistent with the seasonality of enterprise IT as a whole, we generally experience the lowest demand for our products and services in the first quarter~~end of our fiscal year on January 31, 2021. Thereafter, Mr. Mountford will continue to provide transitional consulting services through March 20, 2021.

Coronavirus (COVID-19)

We continue to actively monitor, evaluate and respond to developments relating to the ~~greatest demand for our products~~Coronavirus (COVID-19) pandemic. The global pandemic has resulted in significant global social and ~~services in the last quarter of our fiscal year. Furthermore, we typically focus investments into~~business disruption and economic contraction.

The global economic contraction due to COVID-19 and its recent resurgence continues to create significant uncertainty and is having an adverse impact on our sales ~~organization, along with significant product launches, in~~growth during fiscal 2021; however, we are not able to currently estimate 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 a stronger second half, the relative impact of which will grow as we operate at a larger scale.ultimate impact.

Components of Results of Operations

Revenue

We derive revenue primarily from the sale of our ~~storage~~Cloud Data Infrastructure, including FlashArray and FlashBlade products and ~~support~~subscription services which includes our Evergreen Storage subscription, and our unified subscription that includes Pure as-a-Service and Cloud Block Store. Subscription services also include our professional services offerings such as installation and implementation consulting services.

Provided that all other revenue recognition criteria have been met, we typically recognize product revenue upon ~~shipment, as title and risk~~transfer of ~~loss are transferred~~control to our ~~channel partners at that time.~~customers and the satisfaction of our performance obligations. Products are typically shipped directly by us to customers, and our channel partners do not stock our inventory. We expect our product revenue may vary from period to period based on, among other things, the timing and size of orders and delivery of products and the impact of significant transactions.

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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 6 years. We~~ recognize revenue from ~~maintenance and support agreements ratably~~subscription services over the contractual service ~~period.~~period and professional services as delivered. We expect our ~~support~~subscription services revenue to increase as we add new customers and our existing customers renew ~~maintenance~~ and ~~support agreements.~~expand their consumption and service levels.

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Cost of Revenue

Cost of product revenue primarily consists of costs paid to our third-party contract manufacturers, which includes the costs of our raw material components, and personnel costs associated with our manufacturing operations. Personnel costs consist of salaries, bonuses and stock-based compensation expense. Our cost of product revenue also includes ~~freight,~~ allocated overhead costs, inventory write-offs, amortization of intangible assets pertaining to developed technology, and ~~inventory write-offs.~~freight. Allocated overhead costs consist of certain employee benefits and ~~facilities related~~facilities-related costs. We expect our cost of product revenue to increase in absolute dollars as our product revenue increases.

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

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Salaries and personnel-related costs, including stock-based compensation expense, are the most significant component of each category of operating expenses. Operating expenses also include allocated overhead costs for ~~certain~~ employee benefits and ~~facilities related~~facilities-related costs.

Research and ~~Development~~.Development. Research and development ~~expense consists~~expenses consist primarily of employee compensation and related expenses, prototype expenses, depreciation associated with assets acquired for research and development, third-party engineering and contractor support costs, as well as allocated overhead. We expect our research and development expense to increase in absolute ~~dollars and it may decrease as a percentage of revenue, as we continue to invest in new and existing products and build upon our technology leadership.~~dollars.

Sales and ~~Marketing~~.Marketing. Sales and marketing ~~expense consists~~expenses 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 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.~~dollars.

General and ~~Administrative~~.Administrative. General and administrative ~~expense consists~~expenses consist 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 amortization of intangible assets pertaining to defensive technology patents and allocated overhead. We expect our general and administrative expense to increase in absolute ~~dollars and it may decrease as a percentage of revenue, as we continue to invest in the growth of our business.~~dollars.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income ~~earned on~~related to cash, cash equivalents and marketable securities, interest expense related to our debt and gains ~~and losses~~(losses) from foreign currency transactions.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and state income taxes in the United States. We have recorded no U.S. federal current income tax and provided a full valuation allowance for U.S. deferred tax assets, which includes net operating loss carryforwards and tax credits related primarily to research and development. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that the assets will not be realized based on our history of losses.

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Results of Operations

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of total revenue ~~(in thousands)~~(dollars in thousands, unaudited):

Three Months Ended
October 31, Nine Months Ended
October 31,
2016 2017 2016 2017
(unaudited)
Consolidated Statements of Operations Data:
Revenue:

Product $ 160,523
$ 223,196
$ 403,181
$ 536,634
Support 36,433
54,478
96,936
148,132
Total revenue 196,956
277,674
500,117
684,766
Cost of revenue:

Product⁽¹⁾
54,725
75,392
131,618
179,289
Support⁽¹⁾
14,597
20,467
41,531
56,569
Total cost of revenue 69,322
95,859
173,149
235,858
Gross profit 127,634
181,815
326,968
448,908
Operating expenses:

Research and development⁽¹⁾
61,612
68,927
173,185
203,716
Sales and marketing ⁽¹⁾
91,392
129,299
262,073
346,896
General and administrative ⁽¹⁾
22,810
25,406
64,021
67,664
Legal settlement 30,000
—
30,000
—
Total operating expenses 205,814
223,632
529,279
618,276
Loss from operations (78,180 ) (41,817 ) (202,311 ) (169,368 )
Other income (expense), net (192 ) 1,138
1,127
6,399
Loss before provision for income taxes (78,372 ) (40,679 ) (201,184 ) (162,969 )
Provision for income taxes 441
970
967
2,755
Net loss $ (78,813 ) $ (41,649 ) $ (202,151 ) $ (165,724 )


⁽¹⁾	~~Includes stock-based compensation expense as follows:~~

Three Months Ended
October 31,
Nine Months Ended
October 31,
2016 2017 2016 2017
(unaudited)
Cost of revenue—product $ 138
$ 143
$ 425
$ 898
Cost of revenue—support 1,178
2,422
3,982
6,441
Research and development 15,241
18,073
40,875
51,632
Sales and marketing 8,468
12,104
24,719
34,169
General and administrative 3,210
6,121
9,128
14,780
Total stock-based compensation expense $ 28,235
$ 38,863
$ 79,129
$ 107,920

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Three Months Ended
October 31, Nine Months Ended
October 31,
2016 2017 2016 2017
(unaudited)
Condensed Consolidated Statements of Operations Data:

Revenue:

Product 81.5 % 80.4 % 80.6 % 78.4 %
Support 18.5
19.6
19.4
21.6
Total revenue 100.0
100.0
100.0
100.0
Cost of revenue:

Product 27.8
27.1
26.3
26.1
Support 7.4
7.4
8.3
8.3
Total cost of revenue 35.2
34.5
34.6
34.4
Gross profit 64.8
65.5
65.4
65.6
Operating expenses:

Research and development 31.3
24.8
34.7
29.7
Sales and marketing 46.4
46.6
52.4
50.7
General and administrative 11.6
9.2
12.8
9.9
Legal settlement 15.2
—
6.0
—
Total operating expenses 104.5
80.6
105.9
90.3
Loss from operations (39.7 ) (15.1 ) (40.5 ) (24.7 )
Other income (expense), net (0.1 ) 0.5
0.3
0.9
Loss before provision for income taxes (39.8 ) (14.6 ) (40.2 ) (23.8 )
Provision for income taxes 0.2
0.4
0.2
0.4
Net loss (40.0 )% (15.0 )% (40.4 )% (24.2 )%

Revenue


																		Third Quarter of Fiscal				Change				First Three Quarters of Fiscal				Change
	Three Months Ended October 31,				Change				Nine Months Ended October 31,				Change					2020		2021		$		%		2020		2021		$		%
	2016		2017		$		%		2016		2017		$		%
	(dollars in thousands, unaudited)
(dollars in thousands, unaudited)																	(dollars in thousands, unaudited)
Product revenue	$	160,523	$	223,196	$	62,673	39	%	$	403,181	$	536,634	$	133,453	33	%	Product revenue	$	323,268	$	274,470	$	(48,798)	(15)	%	$	862,137	$	793,718	$	(68,419)	(8)	%
Support revenue	36,433		54,478		18,045		50	%	96,936		148,132		51,196		53	%
Subscription services revenue																	Subscription services revenue	105,141		136,149		31,008		29	%	289,299		387,743		98,444		34	%
Total revenue	$	196,956	$	277,674	$	80,718	41	%	$	500,117	$	684,766	$	184,649	37	%	Total revenue	$	428,409	$	410,619	$	(17,790)	(4)	%	$	1,151,436	$	1,181,461	$	30,025	3	%

Total revenue ~~increased~~decreased by ~~$80.7~~$17.8 million, or ~~41%~~4%, during the ~~three months ended October 31, 2017~~third quarter of fiscal 2021 compared to the ~~three months ended October 31, 2016~~third quarter of fiscal 2020 and increased by ~~$184.6~~$30.0 million, or ~~37%~~3%, during the ~~nine months ended October 31, 2017~~first three quarters of fiscal 2021 compared to the ~~nine months ended October 31, 2016.~~ first three quarters of fiscal 2020.

The ~~increase~~decrease in total revenue during the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 was driven by a decline in product revenue as we continued to experience headwinds caused by the COVID-19 pandemic despite sales growth from our FlashBlade and FlashArray//C offerings during the quarter. The decline in product revenue was primarily driven by repeat purchases from existing customers and a growing number of new customers. The number of customers grew from over 2,600 as of October 31, 2016 to over 4,000 as of October 31, 2017. The increase in support revenue was primarily drivenpartially offset by an increase in ~~maintenance~~subscription services revenue from both our Evergreen Storage subscription services, and ~~support agreements sold with increased~~our unified subscription that includes Pure as-a-Service and Cloud Block Store.

The increase in total revenue during the first three quarters of fiscal 2021 compared to the first three quarters of fiscal 2020 was largely driven by increases in sales of both our Evergreen Storage subscription services, and our unified subscription that includes Pure as-a-Service and Cloud Block Store. The increase in revenue of our subscription services was partially offset by a decline in product ~~sales,~~revenue impacted by the headwinds caused by the COVID-19 pandemic.

During the third quarter of fiscal year 2021 compared to the third quarter of fiscal 2020, total revenue in the United States declined by 3% from $312.0 million to $302.1 million and total rest of the world revenue declined by 7% from $116.4 million to $108.5 million. During the first three quarters of fiscal 2021 compared to the first three quarters of fiscal 2020, total revenue in the United States grew by 1% from $835.5 million to $847.9 million and total rest of the world revenue grew 6% from $315.9 million to $333.5 million. For further details on revenues by geography, see Note 16 of Part I, Item 1 of this Quarterly Report on Form 10-Q.

Deferred Revenue

Deferred revenue primarily consists of amounts that have been invoiced but have not yet been recognized as ~~well as increased recognition~~revenue including performance obligations pertaining to subscription services. The current portion of deferred ~~support~~ revenue ~~contracts.~~

represents the amounts that are expected to be recognized as revenue within one year of the condensed consolidated balance sheet dates.

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Changes in total deferred revenue during the periods presented are as follows (in thousands, unaudited):


	Third Quarter of Fiscal				First Three Quarters of Fiscal
	2020		2021		2020		2021
Beginning balance	$	607,263	$	724,751	$	535,920	$	697,288
Additions	142,164		180,285		400,605		467,454
Recognition of deferred revenue	(106,229)		(142,272)		(293,327)		(401,978)
Ending balance	$	643,198	$	762,764	$	643,198	$	762,764

Revenue recognized during the third quarter of fiscal 2020 and 2021, from deferred revenue at the beginning of each respective period was $101.4 million and $121.9 million. Revenue recognized during the first three quarters of fiscal 2020 and 2021, from deferred revenue at the beginning of each respective period was $213.2 million and $285.0 million.

Remaining Performance Obligations

Total contracted but not recognized revenue was $1,010.4 million at the end of the third quarter of fiscal 2021. Contracted but not recognized revenue consists of both deferred revenue and non-cancelable amounts that are expected to be invoiced and recognized as revenue in future periods. Orders that are contracted but have not been fulfilled and that can be canceled by customers are excluded from remaining performance obligations. Of the $1,010.4 million contracted but not recognized revenue at the end of the third quarter of fiscal 2021, we expect to recognize approximately 43% over the next 12 months, and the remainder thereafter.

Cost of Revenue and Gross Margin


	Third Quarter of Fiscal						Change				First Three Quarters of Fiscal						Change
	2020			2021			$		%		2020			2021			$		%
(dollars in thousands, unaudited)
Product cost of revenue	$	89,086		$	85,634		$	(3,452)	(4)	%	$	256,617		$	237,664		$	(18,953)	(7)	%
Stock-based compensation	912			1,027			115		13	%	2,843			3,013			170		6	%
Total product cost of revenue	$	89,998		$	86,661		$	(3,337)	(4)	%	$	259,460		$	240,677		$	(18,783)	(7)	%
% Product revenue	28		%	32		%					30		%	30		%

Subscription services cost of revenue	$	34,256		$	43,559		$	9,303	27	%	$	95,531		$	121,756		$	26,225	27	%
Stock-based compensation	3,517			3,883			366		10	%	11,101			10,961			(140)		(1)	%
Total subscription services cost of revenue	$	37,773		$	47,442		$	9,669	26	%	$	106,632		$	132,717		$	26,085	24	%
% of Subscription services revenue	36		%	35		%					37		%	34		%

Total cost of revenue	$	127,771		$	134,103		$	6,332	5	%	$	366,092		$	373,394		$	7,302	2	%
% of Total revenue	30		%	33		%					32		%	32		%

Product gross margin	72		%	68		%					70		%	70		%
Subscription services gross margin	64		%	65		%					63		%	66		%
Total gross margin	70		%	67		%					68		%	68		%

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Three Months Ended October 31, Change Nine Months Ended
October 31, Change
2016 2017 $ % 2016 2017 $ %
(dollars in thousands, unaudited)
Product cost of revenue $ 54,725
$ 75,392
$ 20,667
38 % $ 131,618
$ 179,289
$ 47,671
36 %
Support cost of revenue 14,597
20,467
5,870
40 % 41,531
56,569
15,038
36 %
Total cost of revenue $ 69,322
$ 95,859
$ 26,537
38 % $ 173,149
$ 235,858
$ 62,709
36 %
Product gross margin 65.9 % 66.2 %

67.4 % 66.6 %
Support gross margin 59.9 % 62.4 %

57.2 % 61.8 %
Total gross margin 64.8 % 65.5 %

65.4 % 65.6 %

~~Cost of revenue increased by $26.5 million, or 38%,~~The decline in product gross margin during the ~~three months ended October 31, 2017 compared~~third quarter of fiscal 2021 was primarily attributable to ~~the three months ended October 31, 2016~~lower component costs and increased ~~by $62.7 million, or 36%,~~sales of larger FlashArray systems during the ~~nine months ended October 31, 2017 compared to the nine months ended October 31, 2016. The increase in product cost~~third quarter of ~~revenue was primarily driven by increased product sales~~fiscal 2020 and, to a lesser extent, by ~~the increased costs in our manufacturing operations, including increased personnel costs associated with increased headcount. The~~an increase in ~~support~~the amortization of intangible assets during the current quarter resulting from the Portworx acquisition.

The decline in product cost of revenue during the first three quarters of fiscal 2021 compared to the first three quarters of fiscal 2020 was primarily attributable to the corresponding decline in product revenue as we continued to experience headwinds caused by the COVID-19 pandemic.

The increase in subscription services cost of revenue for both periods was primarily attributable to higher costs in our customer support ~~organization as we continue to expand globally. These costs are primarily~~organization. The increase in subscription services gross margin for both periods was driven by increased ~~personnel costs associated with increased headcount and an increase~~renewals in ~~parts replacement associated with a higher number of maintenance and support agreements. Total headcount in these functions increased 42% from October 31, 2016 to October 31, 2017.~~

Total gross margin increased from 64.8% in the three months ended October 31, 2016 to 65.5% in the three months ended October 31, 2017 and increased from 65.4% in the nine months ended October 31, 2016 to 65.6% in the nine months ended October 31, 2017. Product gross margin was relatively consistent at 65.9% in the three months ended October 31, 2016 and at 66.2% in the three months ended October 31, 2017. Product gross margin decreased from 67.4% in the nine months ended October 31, 2016 to 66.6% in the nine months ended October 31, 2017, primarily driven by both pricing and product mix dynamics including our ~~FlashBlade~~ products. Support gross margin increased from 59.9% to 62.4% during the three months ended October 31, 2017 and from 57.2% to 61.8% during the nine months ended October 31, 2017, primarily attributed to increased recognition of deferred support revenue resulting from our expanding customer base and our continued efforts at driving operational efficiencies in our support organization.Evergreen Storage subscriptions.

Operating Expenses

Research and Development


	Third Quarter of Fiscal						Change				First Three Quarters of Fiscal						Change
	2020			2021			$		%		2020			2021			$		%
(dollars in thousands, unaudited)
Research and development	$	78,836		$	93,761		$	14,925	19	%	$	233,578		$	262,309		$	28,731	12	%
Stock-based compensation	27,827			29,220			1,393		5	%	85,180			87,770			2,590		3	%
Total expenses	$	106,663		$	122,981		$	16,318	15	%	$	318,758		$	350,079		$	31,321	10	%
% of Total revenue	25		%	30		%					28		%	30		%

Three Months Ended October 31, Change Nine Months Ended
October 31, Change
2016 2017 $ % 2016 2017 $ %
(dollars in thousands, unaudited)
Research and development $ 61,612
$ 68,927
$ 7,315
12 % $ 173,185
$ 203,716
$ 30,531
18 %

Research and development expense increased by ~~$7.3~~$16.3 million, or ~~12%~~15%, during the ~~three months ended October 31, 2017~~third quarter of fiscal 2021 compared to the ~~three months ended October 31, 2016,~~third quarter of fiscal 2020, as we ~~continued~~continue to innovate and develop ~~new~~technologies to both enhance and ~~enhanced product offerings including~~expand our ~~FlashBlade~~ ~~and~~ ~~FlashArray//X~~ ~~products.~~solution portfolio. The increase was primarily driven

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by a ~~$7.9~~$16.0 million increase in employee compensation and related costs ~~including~~and a ~~$2.8~~$4.6 million increase in ~~stock-based compensation~~outside services expense, ~~as headcount increased 15% from October 31, 2016~~partially offset by a $5.6 million decrease in depreciation expense due to ~~October 31, 2017.~~revising our estimated useful lives of test equipment and certain computer equipment and software during the first quarter of fiscal 2021.

Research and development expense increased by ~~$30.5~~$31.3 million, or ~~18%~~10%, during the ~~nine months ended October 31, 2017~~first three quarters of fiscal 2021 compared to the ~~nine months ended October 31, 2016, as we continued to develop new and enhanced product offerings including our~~ ~~FlashBlade~~ ~~and~~ ~~FlashArray//X~~ ~~products.~~first three quarters of fiscal 2020. The increase was primarily driven by a ~~$27.7~~$39.2 million increase in employee compensation and related costs ~~including~~and a ~~$10.8~~$6.8 million increase in ~~stock-based compensation~~outside services expense, ~~as headcount increased 15% from October 31, 2016 to October 31, 2017. The remainder of the increase was primarily attributable to~~partially offset by a ~~$4.9~~$17.6 million ~~increase~~decrease in depreciation expense ondue to revising our estimated useful lives of test ~~equipment.~~equipment and certain computer equipment and software during the first quarter of fiscal 2021.

Sales and Marketing


	Third Quarter of Fiscal						Change				First Three Quarters of Fiscal						Change
	2020			2021			$		%		2020			2021			$		%
(dollars in thousands, unaudited)
Sales and marketing	$	168,017		$	157,384		$	(10,633)	(6)	%	$	486,462		$	469,131		$	(17,331)	(4)	%
Stock-based compensation	16,802			14,898			(1,904)		(11)	%	51,171			48,018			(3,153)		(6)	%
Total expenses	$	184,819		$	172,282		$	(12,537)	(7)	%	$	537,633		$	517,149		$	(20,484)	(4)	%
% of Total revenue	43		%	42		%					47		%	44		%

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Three Months Ended October 31, Change Nine Months Ended
October 31, Change
2016 2017 $ % 2016 2017 $ %
(dollars in thousands, unaudited)
Sales and marketing $ 91,392
$ 129,299
$ 37,907
41 % $ 262,073
$ 346,896
$ 84,823
32 %

Sales and marketing expense ~~increased~~decreased by ~~$37.9~~$12.5 million, or ~~41%~~7%, during the ~~three months ended October 31, 2017~~third quarter of fiscal 2021 compared to the ~~three months ended October 31, 2016, as we grew our sales force~~third quarter of fiscal 2020, primarily due to a decrease of $19.7 million in marketing and ~~expanded our geographic footprint. The increase was primarily driven~~travel spend due to the COVID-19 pandemic, partially offset by a ~~$31.2~~$3.6 million increase in employee compensation and related costs ~~including a $17.3 million~~as we continue to invest in certain areas within sales ~~commission expense~~and marketing and a ~~$3.6~~$2.7 million increase in ~~stock-based compensation expense, as headcount increased 20% from October 31, 2016 to October 31, 2017.~~ The remainder of the increase was primarily attributable to a $2.4 million increase in sales conferences, marketing and brand awareness program costs, a $2.1 million increase in office expenses and a $1.3 million increase in travel and related costs.outside services expense.

Sales and marketing expense ~~increased~~decreased by ~~$84.8~~$20.5 million, or ~~32%~~4%, during the ~~nine months ended October 31, 2017~~first three quarters of fiscal 2021 compared to the ~~nine months ended October 31, 2016, as we grew our sales force and expanded our geographic footprint.~~first three quarters of fiscal 2020. The ~~increase~~decrease was primarily ~~driven~~due to a decrease of $49.5 million in marketing and travel spend due to the COVID-19 pandemic, partially offset by a ~~$64.6~~$18.5 million increase in employee compensation and related costs, ~~including~~ a ~~$26.0~~$5.9 million increase in outside services expense as we continue to grow our sales ~~commission expense~~force and expand our international presence, and a ~~$9.5~~$4.5 million increase in stock-based compensation expense, as headcount increased by 20% from October 31, 2016 to October 31, 2017. The remainder of the increase was primarily attributable to a $6.8 million increase in sales conference, marketing and brand awareness program costs, including expenses related to our annual Pure//Accelerate conference in June 2017, a $5.8 million increase in office and ~~related expenses, a $3.6 million increase in outside services costs and a $3.2 million increase in travel and related costs.~~facilities-related expenses.

General and Administrative

Three Months Ended October 31, Change Nine Months Ended
October 31, Change
2016 2017 $ % 2016 2017 $ %
(dollars in thousands, unaudited)
General and administrative $ 22,810
$ 25,406
$ 2,596
11 % $ 64,021
$ 67,664
$ 3,643
6 %


	Third Quarter of Fiscal						Change				First Three Quarters of Fiscal						Change
	2020			2021			$		%		2020			2021			$		%
(dollars in thousands, unaudited)
General and administrative	$	32,245		$	35,886		$	3,641	11	%	$	95,047		$	102,070		$	7,023	7	%
Stock-based compensation	5,171			10,581			5,410		105	%	24,495			29,993			5,498		22	%
Total expenses	$	37,416		$	46,467		$	9,051	24	%	$	119,542		$	132,063		$	12,521	10	%
% of Total revenue	9		%	11		%					10		%	11		%

General and administrative expense increased by ~~$2.6~~$9.1 million, or ~~11%~~24%, during the ~~three months ended October 31, 2017~~third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 and increased by $12.5 million, or 10%, during the first three ~~months ended October 31, 2016. The increase was~~quarters of fiscal 2021 compared to the first three quarters of fiscal 2020, primarily due to ~~a $5.5 million increase in~~ employee compensation and related costs ~~including a $2.9 million increase in stock-based compensation expense, as we~~driven by increased ~~our general and administrative~~ headcount, ~~by 33% from October 31, 2016 to October 31, 2017, which was~~ partially offset by ~~a $3.1~~office and facilities-related expenses.

Restructuring and Other


	Third Quarter of Fiscal						Change		First Three Quarters of Fiscal						Change
	2020			2021			$		2020			2021			$
(dollars in thousands, unaudited)
Restructuring and other	$	—		$	—		$	—	$	—		$	22,990		$	22,990
% of Total revenue	—		%	—		%			—		%	2		%

During the first three quarters of fiscal 2021, we incurred incremental costs of $8.9 million ~~decrease~~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 and estimated non-recoverable costs for internal events that could not be held. In addition, we expensed unamortized costs of $7.5 million relating to the cease use of certain lease facilities and recognized $6.6 million in ~~legal and other fees.~~one-time involuntary termination benefit costs related to workforce realignment plans.

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General and administrative expense increased by $3.6 million, or 6%, during the nine months ended October 31, 2017 compared to the nine months ended October 31, 2016. The increase was primarily due to a $12.1 million increase in employee compensation and related costs, including a $5.7 million increase in stock-based compensation expense as we increased our general and administrative headcount by 33% from October 31, 2016 to October 31, 2017, and a $1.3 million increase in office and related expenses, partially offset by a $8.9 million decrease in outside services costs including legal and other fees.

~~Legal Settlement~~

In October 2016, we incurred a one-time charge of $30.0 million related to a legal settlement agreement with Dell Inc. There was no legal settlement charge in the three and nine months ended October 31, 2017.

Other Income (Expense), Net


	Third Quarter of Fiscal						Change		First Three Quarters of Fiscal						Change
	2020			2021			$		2020			2021			$
(dollars in thousands, unaudited)
Other income (expense), net	$	9		$	(4,887)		$	(4,896)	$	(2,459)		$	(6,700)		$	(4,241)
% of Total revenue	—		%	(1)		%			—		%	(1)		%

Three Months Ended October 31, Change Nine Months Ended
October 31, Change
2016 2017 2016 2017
(dollars in thousands, unaudited)
Other income (expense), net $ (192 ) $ 1,138
$ 1,330
$ 1,127
$ 6,399
$ 5,272

~~The increases in other~~Other income (expense), net decreased by $4.9 million during the ~~three and nine months ended October 31, 2017~~third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 and decreased by $4.2 million during the first three ~~and nine months ended October 31, 2016 were driven by increases in net gains from foreign currency transactions and increases~~quarters of fiscal 2021 compared to the first three quarters of fiscal 2020, primarily due to a decrease in interest income ~~earned on~~resulting from lower interest rate environment and, to a lesser extent, higher interest expense due to borrowings under our ~~cash, cash equivalents and marketable securities.~~revolving line of credit.

Provision for Income Taxes


	Third Quarter of Fiscal						Change				First Three Quarters of Fiscal						Change
	2020			2021			$		%		2020			2021			$		%
(dollars in thousands, unaudited)
Provision for income taxes	$	1,731		$	4,121		$	2,390	138	%	$	3,288		$	8,869		$	5,581	170%
% of Total revenue	—		%	1		%					—		%	1		%

Three Months Ended October 31, Change Nine Months Ended
October 31, Change
2016 2017 2016 2017
(dollars in thousands, unaudited)
Provision for income taxes $ 441
$ 970
$ 529
$ 967
$ 2,755
$ 1,788

The ~~increases in~~ provision for income taxes increased during the third quarter and first three ~~and nine months ended October 31, 2017~~quarters of fiscal 2021 compared to the third quarter and first three ~~and nine months ended October 31, 2016 was driven by~~quarters of fiscal 2020 primarily attributable to an increase in foreign income taxes and ~~less excess tax benefit~~the release of valuation allowance related to ~~our employee stock-based activities.~~unrealized gains on available for sale securities in the third quarter and first three quarters of fiscal 2020.

Liquidity and Capital Resources

AsAt the end of ~~October 31, 2017,~~the third quarter of fiscal 2021, we had cash, cash equivalents and marketable securities of ~~$551.4~~$1,201.4 million. Our cash and cash equivalents primarily consist of bank deposits and money market accounts. Our marketable securities generally consist of highly rated debt instruments of the U.S. government and its agencies, debt instruments of highly rated corporations, ~~and~~ debt instruments issued by foreign ~~governments. We have generated significant operating losses~~governments, and negative cash flows from operations as reflected in our accumulated deficit of $968.2 million. We may continue to incur operating losses and negative cash flows from operations in the near future and require additional capital resources to execute strategic initiatives to grow our business.asset-backed securities.

We believe our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating and capital needs for at least the next 12 months. Our ~~future~~liquidity and working capital ~~requirements will depend on many factors including our growth rate,~~needs could be negatively impacted by the ~~timing~~COVID-19 pandemic and ~~extent of spending to support development efforts, the expansion of~~global economic recession which has resulted in reduced sales, and ~~marketing and international operation activities, the timing of new product introductions, and the continuing market acceptance~~certain of our ~~products and services.~~customers or partners being unable to timely fulfill their payment obligations to us. We may ~~in the future~~continue to enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property ~~rights. We~~rights and may ~~be required to~~ seek additional

equity or debt financing in the future. For example, we acquired Portworx for $353.0 million in October 2020.

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Revolving Credit Facility

~~equity~~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 ~~debt financing. In~~early termination by us, on the ~~event that additional financing is required from outside sources, we may not be able~~earlier of (i) August 24, 2025 or (ii) 91 days prior to ~~raise it~~the stated maturity of the convertible senior notes unless, on ~~terms acceptable~~such date and each subsequent day until the convertible senior notes are paid in full, the sum of our cash, cash equivalents and marketable securities and the aggregate unused commitments then available to us exceed $625.0 million. The annual interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.50% to 1.25% or LIBOR (based on one, three, or six-month interest periods), subject to a floor of 0%, plus a margin ranging from 1.50% to 2.25%. Interest on revolving loans is payable quarterly in arrears with respect to loans based on the base rate and at ~~all. If we~~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 ~~unable~~also required to ~~raise additional capital when desired,~~pay a commitment fee on the unused portion of the commitments ranging from 0.25% to 0.40% per annum, payable quarterly in arrears that commenced on September 30, 2020. Loans under the Credit Facility are collateralized by substantially all of our ~~business, operating results~~assets and subject to certain restrictions and two financial ~~condition would be adversely affected.~~

Asratios measured as of the last day of each fiscal quarter, commencing with the fiscal quarter ending January 31, ~~2017~~2021.

In September 2020, we drew down $250.0 million under the Credit Facility to fund the acquisition of Portworx which remained outstanding at the end of the third quarter of fiscal 2021. The outstanding loan bore interest at the one-month LIBOR of approximately 1.65%. Assuming interest rates remain relatively constant and ~~October 31, 2017,~~no repayment, we expect our quarterly interest expense for the outstanding borrowing under the revolver to be approximately $1.0 million. We were in compliance with all covenants under the Credit Facility at the end of the third quarter of fiscal 2021.

Letters of Credit

At the end of fiscal 2020 and the end of the third quarter of fiscal 2021, we had outstanding letters of credit in the aggregate amount of ~~$9.6~~$11.5 million and $7.5 million, in connection with our facility leases. In September 2020, we executed an amendment that reduced our letter of credit related to our headquarters lease by $3.6 million. The letters of credit are collateralized by restricted cash ~~in the same amount~~ and mature aton various dates through August ~~2026.~~2029.

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 underwriters' discounts and commissions. The Notes are unsecured obligations that do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our subsidiaries. The Notes mature on April 15, 2023 unless repurchased or redeemed by us or converted in accordance with their terms prior to the maturity date. The Notes are convertible for up to 21,884,155 shares of our common stock at an initial conversion rate of approximately 38.0594 shares of common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $26.27 per share of common stock, subject to adjustment.

Holders may surrender their Notes for conversion at their option at any time prior to the close of business on the business day immediately preceding October 15, 2022, only under specific circumstances. On or after October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time regardless of the foregoing conditions. Upon conversion, holders will receive cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. We intend to settle the principal of the Notes in cash. See further discussion in Note 7 in Part I, Item 1 of this report.

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Share Repurchase Program

In August 2019, our board of directors approved the repurchase of up to $150.0 million of our common stock. During the third quarter of fiscal 2021, we repurchased and retired 1,360,000 shares of common stock at an average purchase price of $15.72 per share for an aggregate repurchase price of $21.4 million. During the first three quarters of fiscal 2021, we repurchased and retired 8,496,191 shares of common stock at an average purchase price of $13.11 per share for an aggregate repurchase price of approximately $111.4 million. Approximately $23.6 million remained under our share repurchase authorization as of the end of the third quarter of fiscal 2021.

The following table summarizes our cash flows for the periods presented (in thousands, unaudited):


								First Three Quarters of Fiscal
	Nine Months Ended October 31,							2020		2021
	2016			2017
Net cash provided by (used in) operating activities	$	(51,880	)	$	13,756
Net cash provided by operating activities							Net cash provided by operating activities	$	119,716	$	118,608
Net cash used in investing activities	$	(436,732	)	$	(53,290	)	Net cash used in investing activities	$	(312,649)	$	(415,853)
Net cash provided by financing activities	$	36,331		$	37,898		Net cash provided by financing activities	$	48,753	$	194,374

Operating Activities

Net cash provided by operating activities during the ~~nine months ended October 31, 2017~~first three quarters of fiscal 2021 was ~~$13.8 million, which resulted~~ primarily driven by cash collections from ~~a net loss~~sales of ~~$165.7 million,~~our product and subscription services including certain invoices with extended payment terms and deferral of the employer portion of social security payroll tax under the CARES Act, partially offset by non-cash charges for stock-based compensation expense of $107.9 million, depreciation and amortization of $45.5 million, and net cash inflows of $25.2 million from changes in operating assets and liabilities. The net cash inflows from changes in operating assets and liabilities were primarily the result of a $54.4 million increase in deferred revenue, a $14.6 million increase in accruedpayments to our contract manufacturers, employee compensation, and other liabilities and a $11.8 million increase in accounts payable, partially offset by a $33.6 million increase in net accounts receivable, a $14.3 million increase in inventory and a $7.6 million increase in deferred commissions. The increases in deferred revenue and deferred commissions were primarily due to new sales order growth during the nine months ended October 31, 2017. The increase in inventory was primarily as a result of increased purchases to manage component costs and availability to meet demand for our products. The increases in accounts receivable, accounts payable and accrued compensation and other liabilities were primarily attributable to revenue growth and increased activities to support overall business growth.

general corporate operating expenditures.

Net cash ~~used in~~provided by operating activities during the ~~nine months ended October 31, 2016~~first three quarters of fiscal 2020 was ~~$51.9 million, which resulted~~primarily driven by cash collections from ~~a net loss~~sales of ~~$202.2 million, including a $30.0 million one-time legal settlement payment,~~our product and subscription services, partially offset by non-cash charges for stock-based compensation expense of $79.1 million, $36.0 million for depreciation and amortization and net cash inflows of $34.1 million from changes in operating assets and liabilities. The net cash inflows from changes in operating assets and liabilities were primarily the result of a $60.2 million increase in deferred revenue, a $6.8 million increase in accruedpayments to our contract manufacturers, employee compensation, and other liabilities, a $3.6 million increase in accounts payable and a $1.8 million decrease in deferred commissions, partially offset by a $38.2 million increase in accounts receivable. The increases in deferred revenue was primarily due to new sales order growth during the nine months ended October 31, 2016. The increases in accounts receivable, accounts payable and in accrued compensation and other liabilities were primarily attributable to revenue growth and increased activities to support overall business growth.general corporate operating expenditures.

Investing Activities

Net cash used in investing activities during the ~~nine months ended October 31, 2017~~first three quarters of ~~$53.3 million resulted from~~fiscal 2021 was driven by net cash paid for our acquisition of Portworx, capital expenditures, ~~of $44.4 million,~~partially offset by net ~~purchases~~sales of marketable ~~securities of $6.9 million, and a net increase in restricted cash of $2.0 million related to security deposit for office space.~~securities.

Net cash used in investing activities during the ~~nine months ended October 31, 2016~~first three quarters of ~~$436.7 million resulted from~~fiscal 2020 was driven by net purchases of marketable securities, ~~of $365.5 million,~~ capital expenditures, net cash paid for our acquisition of ~~$64.6 million, an increase in restricted cash of $5.6 million related to a corporate credit card program~~Compuverde, and ~~security deposit for office space, as well as the purchase of a portfolio of technology patents for $1.0 million.~~

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intangible assets acquired.

Financing Activities

Net cash provided by financing activities during the ~~nine months ended October 31, 2017~~first three quarters of fiscal 2021 was ~~$37.9 million~~ primarily ~~attributable to $22.1 million in~~driven by net proceeds from borrowing under revolving line of credit, proceeds from exercise of stock options and issuance of common stock ~~under~~from employee stock purchase plan (ESPP) ~~and $15.8 million in proceeds from the exercise of employee stock options.~~, partially offset by share repurchases.

Net cash provided by financing activities during the ~~nine months ended October 31, 2016~~first three quarters of fiscal 2020 was ~~$36.3 million primarily due to $25.6 million in~~driven by proceeds from issuance of common stock ~~under~~from ESPP and ~~$10.7 million~~exercise of stock options, partially offset by repayment of debt assumed in ~~proceeds from exercises~~connection with the acquisition of ~~employee stock options.~~Compuverde, and tax withholding on vesting of restricted stock.

Contractual Obligations and Commitments

Except as set forth in Notes 8 to 10 of Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes to our non-cancelable contractual obligations and commitments disclosed in our Annual Report on 10-K for fiscal 2020. As events continue to evolve and additional information becomes available in regards to the COVID-19 pandemic, our contractual obligations and commitments may be impacted in future periods.

~~During the nine months ended October 31, 2017, we extended the lease term~~

Table of an existing office facility with total additional lease obligations of approximately $2.0 million with the lease expiring through March 2019. Additionally, in August 2017, we entered into a seven-year term operating lease for approximately 45,831 square feet of office space in Mountain View, California with a total base rent obligation and management fees of $32.2 million. In connection with the lease, we issued a letter of credit of $2.6 million.Contents

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. generally accepted accounting ~~principles (GAAP).~~principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

~~Please see~~Refer to Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. In addition, ~~please~~ see “Critical Accounting Policies and Estimates” in our latest 10-K. There have been no material changes to our critical accounting policies and estimates since our 10-K filed on March ~~29, 2017.~~27, 2020, except for the change in estimate of the useful life for certain property and equipment.

Available Information

Our website is located atwww.purestorage.com, and our investor relations website is located at~~http://~~investor.purestorage.com. The following filings will be available through our investor relations website free of charge after we file them with the SEC: Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and our Proxy Statements for our annual meetings of ~~stockholders, and are also available for download free of charge.~~stockholders. We will also provide a link to the section of the SEC's website atwww.sec.gov that has all of our public filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, our Proxy Statements, and other ownership related filings. Further, a copy of this Quarterly Report on Form 10-Q is located at the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

We webcast our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, social media accounts (Twitter, Facebook and LinkedIn), and blogs as part of our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts and RSS feeds. Further corporate governance information, including our certificate of incorporation, bylaws, governance guidelines, board committee charters, and code of conduct, is also available on our investor relations website under the heading “Corporate Governance.” The content of our websites are not incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

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Item 3. 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, and~~its agencies, debt instruments of highly rated ~~corporate debt. As~~corporations, debt instruments issued by foreign governments, and asset-backed securities. At the end of ~~October 31, 2017,~~the third quarter of fiscal 2021 we had cash, cash equivalents and marketable securities of ~~$551.4~~$1,201.4 million. The carrying amount of our cash equivalents reasonably approximates fair value, due to the short maturities of these instruments. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair 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 ~~$3.6~~$11.2 million asat the end of ~~October 31, 2017~~.the third quarter of fiscal 2021.

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Foreign Currency Exchange Risk

Our sales contracts are primarily denominated in U.S. dollars with a proportionally small number of contracts denominated in foreign currencies. A portion of our operating expenses are incurred outside the United States and denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British pound and Euro. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. Given the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into any derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency exchange should become more significant.

We considered the historical trends in currency exchange rates and determined that it was reasonably possible that adverse changes in exchange rates of 10% for 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 ~~October 31, 2017~~the end of the third quarter of fiscal 2021 to compute the adverse impact these changes would have had on our loss before income taxes in the near term. These changes would have resulted in an adverse impact on loss before provision for income taxes of approximately ~~$8.7~~$3.6 million asat the end of ~~October 31, 2017~~.the third quarter of fiscal 2021.

Item 4. Controls and Procedures.

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 report. Based on such evaluation, our CEO and CFO concluded that, asat the end of ~~October 31, 2017,~~the third quarter of fiscal 2021, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

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Changes in Internal Control over Financial Reporting

~~There~~As a result of COVID-19, most of our workforce has been working from home since March 2020. During the third quarter of fiscal 2021 therewere no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) of the Exchange Act that occurred during the thirdquarter ~~ended October 31, 2017~~of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on 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 judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The information set forth under the "Legal Matters" subheading in Note 5. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

~~In addition, we may from~~From time to time, bewe are involved in various legal proceedings arising from the normal course of business, and an unfavorable resolution of any of these matters could negatively affect our future results of operations, cash flows or financial position. We are not presently party to any legal proceedings that, in the opinion of management, would have a material adverse effect on our business.

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 quarterly 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.

~~Risks Related~~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 and Industry~~

~~We have experienced rapid growth in recent periods, and we may not be able to sustain or manage future growth effectively.~~

~~We have significantly expanded our overall~~ business, customer base, headcount, channel partner relationships and operations in recent periods, and we anticipate that we will continue to expand and may experience significant 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 2,000 employees as of October 31, 2017. Our future operating results, ~~will depend~~cash flows and financial condition may be materially adversely affected by the COVID-19 pandemic, including the resulting global economic uncertainty and measures taken in response to ~~a large extent on~~the pandemic.

•The rapidly evolving market for data storage products makes it difficult to forecast demand for our products.

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

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

•Many of our competitors have long-standing relationships with key decision makers at current and prospective customers, which may inhibit our ability to compete.

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

•If we fail to manage our ~~anticipated expansion. To sustain~~transition to subscription offerings successfully, our revenues and ~~manage our growth successfully, we believe that we must, among other things, effectively:~~

~~maintain and extend our product leadership;~~

~~recruit, hire, train and manage additional personnel;~~

~~maintain and further develop our channel partner relationships;~~

~~enhance and expand our distribution and supply chain infrastructure;~~

~~expand our support capabilities;~~

~~forecast and control expenses;~~

~~enhance and expand our international operations; and~~

~~implement, improve and maintain our internal systems, procedures and controls.~~

We expect that our future growth will continue to place a significant strain on our managerial, administrative, operational, financial and other resources. We will incur costs associated with this future growth prior to realizing the anticipated benefits, and the return on these investmentsresults of operation may be lower, may develop more slowly than we expect or may never materialize. If we are unable to sustain or manage our growth effectively, we may not be able to take advantage of market opportunities or develop new products or enhancements to existing products in a timely manner, and we may fail to satisfy customers’ expectations, maintain product quality, execute on our business plan or adequately respond to competitive pressures, each of which could adversely impact our growth and affect our business and operating results.harmed.

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•We intend to continue focusing on revenue growth and increasing our market penetration and international presence by investing heavily in our business, ~~and this~~which may put pressure on near-term profitability.

•Our gross margins are impacted by a variety of company-specific factors and vary from period to period.

•The sales prices of our products and services may fluctuate or decline, which may reduce our gross profits, revenue growth, and adversely impact our financial results.

•Any disruption to our contract manufacturer or other supply arrangements could delay shipments of our products and could harm our relationships with current and prospective customers.

•We derive the majority of our revenue from our FlashArray products, and a decline in demand for these products would cause our revenue to grow more slowly or to decline.

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Risks Related to Our Business and Industry

Our ~~strategy is to continue with our investments in marketing, sales, support and research and development. We believe our decision to continue investing heavily in our~~ business, will be critical to our future success and to meet our growth objectives. We anticipate that our operating costs and expenses will continue to increase in absolute terms. In addition, we expect to continue incurring significant legal, accounting and other expenses in order to operate effectively as a public company at our scale. Even if we achieve or maintain significant revenue growth, we may continue to experience losses, forgoing near-term profitability on a sustained basis.

We have not achieved profitability for any year since our inception. We incurred a net loss of $245.1 million for the year ended January 31, 2017 and $165.7 million for the nine months ended October 31, 2017, and we had an accumulated deficit of $802.5 million as of January 31, 2017 and $968.2 million as of October 31, 2017. 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,~~cash flows and financial condition may be materially adversely affected by the COVID-19 pandemic, including the resulting global economic uncertainty and measures taken in response to the pandemic, the impacts of which ~~makes our~~will depend on ongoing and future ~~operating results~~developments, which are highly uncertain and difficult to predict.

~~We were founded~~The COVID-19 pandemic has resulted in ~~October 2009, but have generated substantially~~significant global social and business disruption and economic contraction. The pandemic has impacted our business and has also put unprecedented strains on governments, health care systems, educational institutions, businesses and individuals around the world. The ongoing impact on the global population and the magnitude and duration of the COVID-19 pandemic is difficult to assess or predict. It is even more difficult to predict the ongoing impact on the global economic market, which will be highly dependent, among other things, upon the actions of governments, businesses and other organizations in response to the pandemic and the effectiveness of those actions.

The extent and continued impact of the COVID-19 pandemic on our business and operational and financial performance depends on many factors, including the duration and spread of the outbreak; the availability and effectiveness of a vaccine; government responses to and restrictions related to the pandemic; impact on our customers and our sales efforts and cycles; impact on our customer, industry or employee events; and effect on our partners, vendors and supply chains, all of which are uncertain and outside of our ~~revenue in~~control. Potential negative impacts of these external factors include, but are not limited to, material adverse effects on demand for our last three fiscal years. We have a limited operating history in an industry characterized by rapid technological change, changing customer needs, evolving industry standards and frequent introductions of new products and ~~services. Our limited operating history makes it difficult~~services, including due to ~~evaluate our current business~~budget constraints and ~~our future prospects, including~~other uncertainties; our ability to ~~plan for~~gain new customers; our employee productivity; our supply chain and ~~model future growth. All~~sales and distribution channels; collectability of ~~these factors make our future operating results difficult to predict, which may impair~~customer accounts; our ability to ~~manage~~execute strategic plans; impairments; and our ~~business~~profitability and ~~reduce investors’ ability~~cost structure.

Further, the COVID-19 pandemic has enhanced, and may further exacerbate, other risks discussed in this “Risk Factors” section, particularly risks associated with demand, market trends, relationship building and sales efforts, as well as risks affected by the shift to ~~assess~~ our ~~prospects.~~

~~Investors should not consider our revenue growth~~workforce largely working from home. We are continuing to monitor the pandemic and intend to continue taking appropriate steps in ~~prior quarterly or annual periods as indicative~~accordance with the recommendations and requirements of our future performance. In future periods, we do not expect to achieve similar percentage revenue growth rates as we have achieved in some past periods. If we are unable to maintain adequate revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability.relevant authorities.

The rapidly evolving market for ~~all-flash~~data storage products ~~is rapidly evolving, which~~ makes it difficult to forecast ~~customer adoption rates and~~ demand for our products.

The market for ~~all-flash~~data storage products is rapidly evolving. ~~As a~~Changes in the application requirements, data center infrastructure trends and the broader technology landscape result ~~our~~in evolving customer requirements for capacity, performance scalability and enterprise features of storage systems. Our future financial performance ~~will depend on the continued growth of this market and~~depends on our ability to adapt to competitive dynamics and emerging customer demands and trends. ~~Sales~~The introduction of ~~our products have largely focused on use cases that require performance storage products such as virtualization and transaction processing. Some potential customers have not purchased~~ all-flash storage products ~~and may not have the desire or available budget to invest in a new technology such as ours. Incumbent~~by 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 ~~utilizing~~utilize our storage platform could adversely affect the demand for our products. ~~For instance, offerings~~

Offerings from ~~large-scale~~large 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 reduce the demand for storage systems developed by original equipment manufacturers, such as us. ~~Further, although flash storage has a number~~It is difficult to predict with any precision customer adoption rates of ~~advantages as compared to other data storage alternatives, such as hard disk drives, flash storage has certain limitations as well, including, in some use cases, a higher price per gigabyte~~new offerings, customer demand for our products or the future growth rate and size of ~~raw storage, more limited methods for data recovery and reduced performance gains for certain uses, such as sequential input/output, or I/O, transactions.~~our addressable market. A slowing in or ~~reduced~~reduction in demand for ~~all-flash~~our data storage products caused by ~~lack of customer acceptance,~~ technological challenges, alternative technologies and products or ~~otherwise~~any other reason would result in a lower revenue growth rate or decreased revenue, either of which would negatively impact our business and operating results.

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

Despite ongoing data growth, the external storage market in which we compete has not experienced substantial growth in the past few years due to a combination of technology transitions, increased storage efficiency, competitive pricing dynamics and changing economic and business environments. Customers are rethinking how they consume IT, increasing spending toward the public cloud, software as a service, hyperconverged and converged infrastructure and software-defined storage. Any failure on our part to accurately predict trends, successfully update our product offerings or to adapt our sales programs to meet changing customer demands could harm our business, operating results and financial condition. The future impact of these trends on both the short-term and long-term growth of the overall external storage market is uncertain. Reductions in the overall external storage market or the specific markets in which we compete would harm our business and operating results.

We face intense competition from ~~a number of~~ established companies and new entrants.

We face intense competition from a number of established companies that sell competitive storage ~~products. These competitors include~~products, including Dell EMC, HP Enterprise, Hitachi Vantara, IBM, ~~Lenovo~~NetApp and ~~NetApp. These competitors, as well as other potential~~others. 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 offer~~of hyperconverged products, ~~that~~which combine ~~compute,~~ networking and ~~storage, or hyperconverged products. Some cloud~~storage. These providers are growing and expanding ~~quickly, and~~ their product offerings, ~~could, if we are unable to effectively sell to these providers, displace~~potentially 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 offered~~offer 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. Some~~Further, some of our competitors ~~have offered~~offer 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-flash~~storage 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 attempt~~designed, 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 ~~performance and improved total cost of ownership as~~value compared to our products. In addition, ~~our competitors may develop enhancements to, or future generations of, competitive products that~~these 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 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.

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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 manufactured~~products supplied by our ~~competitors. This gives an incumbent competitor~~competitors who have an advantage in retaining the customer because, among other things, the incumbent ~~competitor~~vendor already understands the customer’s IT infrastructure, user demands and ~~needs. In~~needs, or the ~~event that~~customer is concerned about actual or perceived costs of switching to a new vendor and technology, particularly during the uncertainty created by COVID-19.If we are unable to successfully sell our products to new customers or persuade our customers to continue purchasing our products, we will not be able to maintain or increase our market share and revenue, which ~~could~~would adversely affect our business and operating results.

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Our ~~ability to increase our revenue will substantially depend on our ability to attract, motivate~~brand name and ~~retain sales, engineering and other key personnel, including our management team, and any failure to attract, motivate and retain these employees could harm~~ our business ~~operating results and financial condition.~~

Our ability to increase our revenue will substantially depend on our ability to attract and retain qualified sales, engineering and other key employees, including our management. These positions may require candidates with specific backgrounds in software and the storage industry, and competition for employees with such expertise is intense. Our ability to attract, motivate or retain employees may be ~~reduced, as~~harmed by the ~~value~~marketing strategies of our ~~stock fluctuates~~competitors.

We believe that building and asmaintaining brand recognition and customer goodwill is critical to our ~~employees~~success. Our efforts in this area have, on occasion, been hampered by the opportunity to sell their equity awards. We may not be successful in attracting, motivating and retaining qualified personnel. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. To the extent that we are successful in hiring to fill these positions, we need a significant amount of time to train the new employees before they can become effective and efficient in performing their jobs. From time to time, there may be changes in our management team resulting from the hiring or departure of those individuals. Membersmarketing efforts of our ~~management team, including~~competitors, which have included negative or misleading statements about us and our ~~executive officers, are generally employed on an at-will basis, which means that they could terminate their employment with us at any time.~~products. If we are unable to ~~attract, motivate~~effectively respond to the marketing efforts of our competitors and ~~retain qualified sales, engineering~~protect our brand and ~~other key employees, including our management,~~customer goodwill now or in the future, our business ~~and operating results could suffer.~~

~~If we fail to adequately expand and optimize our sales force, our growth~~ will ~~be impeded.~~

We will need to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. We plan to continue to expand and train our sales force, both domestically and internationally. Identifying, recruiting and training qualified sales personnel require significant time, expense and attention. We must design and implement effective sales incentive programs, and it can take time before our sales representatives are fully trained and productive. Our business may be adversely affected if our efforts to expand and train our sales force do not generate a corresponding increase in revenue. In particular, if we are unable to hire, develop and retain qualified sales personnel or if new sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenue.

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

We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. To compete successfully, we must design, develop, market and sell new or enhanced products that provide increasingly higher levels of performance, capacity and reliability and that meet the cost expectations of our customers, which is a complex and uncertain process. The introduction of new products by our competitors, the market acceptance of products based on new or alternative technologies or the emergence of new industry standards could render our existing or future products obsolete or less competitive. As we introduce new or enhanced products, we must successfully manage product launches and transitions to the next generations of our products. For example, we started initial shipments of our new ~~FlashBlade~~ ~~products for general availability in January 2017 and initial shipments of new~~ ~~FlashArray//X~~ products for direct availability in April 2017. 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

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~~software features, that meet the needs of our customers in a timely or cost-effective fashion, we may lose market share and our operating results could~~ be adversely affected.

~~Our research and development efforts may not produce successful products that result in significant revenue in the near future, if at all.~~

Developing new products and related enhancements, including new or improved features, is expensive and time intensive. Our investments in research and development may result in products that may not achieve market adoption, are more expensive to develop than anticipated, may take longer to generate revenue or may generate less revenue than we anticipate. Our future plans include significant investments in research and development for new products and related opportunities. We believe that we must continue to dedicate significant resources to our research and development efforts to maintain or expand our competitive position. However, these efforts may not result in significant revenue in the near future, if at all, which could adversely affect our business and operating results.

If we fail to successfully maintain or grow our relationships with ~~channel~~ partners, our business, operating results and financial condition could be harmed.

Our future success is highly dependent upon our ability to establish and maintain successful relationships with ~~a variety of channel partners.~~our partners, including value-added resellers, service providers and systems integrators. In addition to selling our products, our partners may offer installation, post-sale service and support ~~on our behalf~~ in their local markets. In markets where we rely on partners more heavily, we have less contact with our customers and less control over the sales process and the quality and responsiveness of our partners. As a result, it may be more difficult for us to ensure the proper delivery and installation of our products or the quality or responsiveness of the support and services being offered. Any failure on our part to effectively identify, train and manage our channel partners and to monitor their sales activity, as well as the customer support and services ~~being~~ provided to our customers, ~~in their local markets,~~ could harm our business, operating results and financial condition.

Our ~~channel~~ partners may choose to discontinue offering our products and services or may not devote sufficient attention and resources toward selling our products and services. We typically enter into non-exclusive, written agreements with our channel partners. These agreements generally have a one-year, self-renewing term, have no minimum sales commitment and do not prohibit our channel partners from offering products and services that compete with ours. ~~Accordingly, 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.~~ 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, are subject to variation from period to period and are difficult to predict.~~

Our gross margins fluctuate from period to period due primarily to product costs, customer mix and product mix. Over the last six quarters, 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 freight and components, including NAND and DRAM flash;~~

~~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;~~

~~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;~~

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~~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.~~

~~The occurrence of any one of these risks could negatively affect our operating results in any particular quarter, which could cause the price of our Class A common stock to decline.~~

~~Our~~ sales cycles can be long, unpredictable and ~~unpredictable, particularly with respect to large orders, and our sales efforts require considerable time and expense. As a result,~~expensive, making it ~~can be~~ difficult for us to predict ~~when, if ever, a particular customer will choose to purchase our products, which may cause our operating results to fluctuate.~~future sales.

Our sales efforts involve educating our customers about the use and benefits of our products ~~including their technical capabilities~~ and ~~cost saving potential. Larger customers~~ often ~~undertake an~~involves evaluation ~~and testing~~ process that can result in a lengthy sales ~~cycle.~~cycle, particularly for larger customers. We spend substantial time and resources on our sales efforts without any assurance that our efforts will produce any sales. COVID-19 has impacted our sales efforts. In addition, product purchases are frequently subject to budget constraints, multiple approvals and unplanned administrative ~~processing~~ and other delays. A substantial portion of

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our quarterly sales typically occurs during the last several weeks of the quarter, which we believe largely reflects customer buying patterns of products similar to ours and other products in the technology industry generally.

Since ~~we do not recognize~~ revenue from a product sale is not recognized until ~~title is transferred for the product, if we have~~performance obligations are satisfied, a substantial portion of our sales ~~at the end of~~late in a quarter we may ~~be unable to transfer title and recognize~~negatively impact the recognition of the associated ~~revenue in that quarter.~~revenue. Furthermore, our products come with a 30-day money back guarantee, allowing a customer to return a product within 30 days of receipt if the customer is not satisfied with its purchase for any reason. ~~In addition, a portion of our sales in any quarter is generated by sales activity initiated during the quarter.~~ These factors, among others, make it difficult for us to predict when customers ~~may~~will purchase our ~~products. We may expend significant resources on an opportunity without ever achieving a sale,~~products, which may adversely affect our operating results and cause our operating results to fluctuate. In addition, if sales expected from a specific customer for a particular quarter are not realized in that quarter or at all, our operating results may suffer.

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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 ~~success,~~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 ~~cannot maintain this culture as~~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 ~~grow, we~~fail to develop and introduce new or enhanced products successfully, our ability to attract and retain customers could ~~lose the innovation, creativity and teamwork fostered by our culture, and our business may~~ be harmed.

We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. To compete successfully, we must design, develop, market and sell new or enhanced products that provide increasingly higher levels of performance, capacity and reliability and that meet the expectations of our customers, which is a complex and uncertain process. We believe that ~~a critical contributor~~we must continue to dedicate significant resources to our ~~success has been~~research and development efforts to maintain or expand our ~~company culture, which~~competitive position. Our investments may take longer to generate revenue or may generate less revenue than we believe fosters innovation, creativity, teamwork, passion for customers and focus on execution, as well as facilitating critical knowledge transfer and knowledge sharing. In particular, we believe thatanticipate. The introduction of new products by our competitors, or the ~~difference between~~emergence of alternative technologies or industry standards could render our ~~sales, support and engineering cultures, relative to those of incumbent vendors, is a key competitive advantage and differentiator for our customers and partners.~~ existing or future products obsolete or less competitive.

As we ~~grow~~introduce new or enhanced products, we must successfully manage product launches and ~~change, we may find it difficult~~transitions 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~~next generations of our products and encourage our customers to ~~customers located outside~~adopt new products and features. If we are not able to successfully manage the development and release of ~~the United States, our business is susceptible to risks associated with international operations.~~

We maintain operations outside of the United States. We have been expanding and intend to continue to expand these operations in the future. We have limited experience operating in foreign jurisdictions. This increases the risk that our international expansion efforts may not be successful. In addition, conducting and expanding international operations subjects us to new ~~risks that we do not generally face in the United States. These include:~~

~~exposure to foreign currency exchange rate risk;~~

~~difficulties in collecting payments internationally, and managing and staffing international operations;~~

~~establishing relationships with channel partners in international locations;~~

~~the increased travel, infrastructure and legal compliance costs associated with international locations;~~

~~the burdens of complying with a wide variety of laws associated with international operations, including taxes and customs;~~

~~significant fines, penalties and collateral consequences if we~~ or ~~our partners fail to comply with anti-bribery laws;~~

~~heightened risk of improper, unfair or corrupt business practices in certain geographies;~~

~~potentially adverse tax consequences, including repatriation of earnings;~~

~~increased financial accounting and reporting burdens and complexities;~~

~~political, social and economic instability abroad, terrorist attacks and security concerns in general; and~~

~~reduced or varied protection for intellectual property rights in some countries.~~

~~The occurrence of any one of these risks could negatively affect our international operations and, consequently,~~enhanced products, our business, operating results and financial condition ~~generally.~~could be harmed. Similarly, if we fail to introduce new or enhanced products, such as new or improved software features, that meet our customers' needs in a timely or cost-effective fashion, we may lose market share and our operating results could be adversely affected.

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

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~~The sales prices~~We are now offering all of our products and services ~~may decrease, which may reduce our gross profits and adversely impact our financial results.~~

The sales prices for our products and services may decline for a variety of reasons, including competitive pricing pressures, discounts, 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~~subscription basis, ~~or that~~including our hardware and software products through Pure as-a-Service and Cloud Data Services. These business models are relatively new ~~product and services offerings, if introduced, will enable us~~ to ~~maintain or improve our gross margins and achieve profitability.~~

~~We derive~~ the ~~majority of our revenue from a single family of products, and a decline in demand for these products would cause our revenue to grow more slowly or to decline.~~

~~Our~~ ~~FlashArray~~ ~~family of products has historically accounted for the majority of our revenue~~storage market and will continue to ~~comprise a significant portion of our revenue for the foreseeable future. As a result, our revenue could be reduced by:~~

~~the failure of our current products to achieve broad market acceptance;~~

~~any decline or fluctuation in demand for our products, whether as a result of product obsolescence, technological change, customer budgetary constraints or other factors;~~

~~the introduction of competing products~~evolve, 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~~compete effectively, drive continued revenue growth or maintain the profitability with these business models. Additionally, the subscription models offered by us and our ~~revenue~~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 ~~achieve~~anticipate the needs of our customers, our revenues and ~~maintain profitability.~~profitability could be negatively impacted.

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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~~We may not be able to enforce provisions in our contracts ~~with customers contain provisions~~ relating to warranty disclaimers and liability ~~limitations, which may be difficult to enforce.~~limitations. Defending a lawsuit, regardless of its merit, would be costly and ~~might~~could divert management’s attention and adversely affect the market’s perception of us and our products. Our business liability insurance coverage ~~could prove~~may be inadequate with respect to a claim and future coverage may not be ~~unavailable~~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.

~~Our brand name and our business may be harmed by the marketing strategies of our competitors.~~

Because of the early stage of our business, we believe that building and maintaining brand recognition and customer goodwill is critical to our success. Our efforts in this area have, on occasion, been hampered by the marketing

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~~efforts of our competitors, which have included statements about us and our products.~~ If we are unable to ~~effectively respond to the marketing efforts of~~ensure that our ~~competitors and protect our brand and customer goodwill now or in the future, our business will be adversely affected.~~

~~Our~~ products ~~must~~ interoperate with third party operating systems, software applications ~~and hardware, and if we are unable to devote the necessary resources to ensure that our products interoperate with such software~~ and hardware, we may lose or fail to increase our market ~~share and may experience reduced demand for our products.~~share.

Our products must interoperate with our customers’ ~~existing~~ infrastructure, specifically ~~their~~ networks, servers, software and operating systems, which ~~may be manufactured~~are offered by a wide variety of vendors. When new or updated versions of these ~~software~~ operating systems or applications are introduced, we ~~must sometimes~~may need to develop updated versions of our software so that our products ~~will~~continue 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. These~~all 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 center~~deployed 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 center~~this ecosystem to conform to prevailing industry standards. ~~Often, these~~These 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 acceptance~~sales of our products could be adversely affected, which may harm our business.

Our ability to successfully market and sell our products is dependent in part on ease of use and the quality of our support offerings, and any failure to offer high-quality installation and technical support could harm our business.

Once our products are deployed ~~within~~by our ~~customers’ data centers,~~customers, customers depend on our support organization to resolve technical issues relating to our products. Our ability to provide effective support is largely dependent on our ability to attract, train and retain qualified personnel, as well as to engage with qualified support partners that provide a similar level of customer support. In addition, our sales process is highly dependent on our product and business reputation and on recommendations from our existing customers. Although our products are designed to be interoperable with existing servers and systems, we may need to provide customized installation and configuration support to our customers before our products become fully operational in their environments. Any failure to maintain or a market perception that we do not maintain, high-quality installation and technical support could harm our reputation, our ability to sell our products to existing and prospective customers and our business.

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We rely on contract manufacturers to manufacture our products, and if we fail to manage our ~~relationship~~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. Our reliance on contract manufacturers~~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 ~~could~~will be impaired, potentially on short notice, and our competitive position, reputation and ~~reputation~~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

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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~~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. For example, the CPUs utilized in our products are supplied by Intel Corporation (Intel), and neither we nor our contract manufacturers have an agreement with Intel for the procurement of these CPUs. Instead, we purchase the CPUs either directly from Intel or through a reseller on a purchase order basis. Intel or its resellers could stop selling to us at any time or could raise their prices without notice. While we actively monitor and manage our supply chain, we cannot anticipate the potential impact that new or current restrictions due to COVID-19 may have on the manufacturing and shipment of our products.

This reliance on a limited number of suppliers and the lack of any guaranteed sources of supply exposes us to several risks, including:

•the inability to obtain an adequate supply of key components, including ~~solid-state drives;~~flash;

•price volatility for the components of our products;

•failure of a supplier to meet our quality or production requirements;

•failure of a supplier of key components to remain in business or adjust to market conditions; and

•consolidation among suppliers, resulting in some suppliers exiting the industry, or discontinuing the manufacture of components or increasing the price of components.

Further, some of the components in our products are sourced from component suppliers outside the United States, including from China. The portion of our products that are sourced outside the United States may subject us to additional logistical risks or risks associated with complying with local rules and regulations in foreign countries. Significant changes to existing international trade agreements could lead to sourcing or logistics disruption resulting from import delays or the imposition of increased tariffs on our sourcing partners. For example, there have been discussions regarding potential significant changes to U.S. trade policies, legislation, treaties and tariffs, and the United States and Chinese governments have announced import tariffs by both countries. If any new legislation and/or regulations are implemented, if existing trade agreements are renegotiated or terminated, or if tariffs are imposed on foreign-sourced or U.S. goods, it may be inefficient and expensive for us to alter our business operations in order to adapt to or comply with such changes. Such operational changes could have a material adverse effect on our business, financial condition, results of operations or cash flows.

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As a result of these risks, we cannot assure investors that we will be able to obtain ~~enough~~a sufficient supply of these key components in the future or that the cost of these components will not increase. If our supply of components is disrupted or delayed, or if we need to replace our existing suppliers, there can be no assurance that additional components will be available when required or that components will be available on terms that are favorable to us, which could extend our lead times, increase the costs of our components and harm our business, operating results and financial condition. ~~Even if we are successful in growing our business, we~~We may not be able to continue to procure components at reasonable prices, which may require us to enter into longer-term contracts with component suppliers to obtain ~~these~~ components at competitive prices. ~~This~~Any of the foregoing disruptions could increase our costs and decrease our gross margins, harming our business, operating results and financial condition.

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

Managing the supply of our products and underlying components is complex. ~~Insufficient supply and inventory may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.~~

Our third-party contract manufacturers procure components and build our products based on our forecasts, and we generally do not hold inventory for a prolonged period of time. These forecasts are based on estimates of future demand for our products, which are in turn based on historical trends and analyses from our sales and marketing organizations, adjusted for overall market conditions. In order to reduce manufacturing lead times and plan for adequate component supply, from time to time we may issue ~~forecasts~~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. ~~We have, in the past, had to write off inventory in connection with transitions to new product models.~~ If we ultimately determine that we have excess supply, we may have to reduce our prices and write down or write off excess or obsolete inventory, which in turn could result in lower gross margins. Alternatively, insufficient supply levels may lead to shortages that result in delayed revenue, reduced product margins or loss of sales opportunities altogether. If we are unable to effectively manage our supply and inventory, our results of operations could be adversely affected.

Risks Related to Our Operating Results or Financial Condition

We have experienced growth in prior periods, and we may not be able to sustain future growth effectively or at all.

We have significantly expanded our overall business, customer base, headcount, channel partner relationships and operations in prior periods, and we anticipate that we will continue to expand and experience growth in future periods. For example, while our year-over-year revenue declined 4% for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020, our headcount increased from over 3,350 at the end of the third quarter of fiscal 2020 to over 3,850 employees at the end of the third quarter of fiscal 2021. 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 our growth successfully, we believe that we must, among other things, effectively allocate resources and operate our business across a wide range of priorities.

We expect that our future growth will continue to place strain on our managerial, administrative, operational, financial and other resources. We will incur costs associated with this future growth prior to realizing the anticipated benefits, and the return on these investments may be lower, may develop more slowly than we expect or may never materialize. Investors should not consider our revenue growth in prior quarterly or annual periods as indicative of our future performance. In future periods, we may not achieve similar percentage revenue growth rates as we have achieved in some past periods. If we are unable to maintain adequate revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability. If we are unable to manage our growth successfully, we may not be able to take advantage of market opportunities or release new products or enhancements in a timely manner, and we may fail to satisfy customers’ expectations, maintain product quality, execute on our business plan or adequately respond to competitive pressures, each of which could adversely impact our growth and affect our business and operating results.

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We intend to continue focusing on revenue growth and increasing our market penetration and international presence by investing heavily in our business, which may put pressure on near-term profitability.

We have not achieved profitability for any year since our inception. We incurred a net loss of $201.0 million for fiscal 2020, and $229.8 million for the first three quarters of fiscal 2021, and we had an accumulated deficit of $1,282.9 million at the end of fiscal 2020 and $1,512.7 million at the end of the third quarter of fiscal 2021. Our operating expenses largely are based on anticipated revenue, and a high percentage of our expenses are, and will continue to be, fixed in the short term. If we fail to adequately increase revenue and manage costs, we may not achieve or maintain profitability in the future. As a result, our business could be harmed, and our operating results could suffer.

Our strategy is to continue investing in marketing, sales, support and research and development. We believe continuing to invest heavily in our business is critical to our future success and meeting our growth objectives. We anticipate that our operating costs and expenses will continue to increase in absolute terms. Even if we achieve or maintain significant revenue growth, we may continue to experience losses, forgoing near-term profitability on a U.S. GAAP basis.

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

Our gross margins fluctuate from period to period due primarily to product costs, customer mix and product mix. A variety of factors may cause our gross margins to fluctuate and make them difficult to predict, including, but not limited to:

•sales and marketing initiatives, discount levels, rebates and competitive pricing;

•changes in customer, geographic or product mix, including mix of product configurations;

•the cost of components, including flash and DRAM, and freight;

•new product introductions and enhancements with higher product costs;

•excess inventory levels or purchase obligations as a result of changes in demand forecasts or product transitions;

•an increase in product returns, order rescheduling and cancellations;

•the timing of technical support service contracts and contract renewals; and

•inventory stocking requirements to mitigate supply constraints, accommodate unforeseen demand or support new product introductions.

If we are unable to manage these factors effectively, our gross margins may decline, and fluctuations in gross margins may make it difficult to manage our business and achieve or maintain profitability, which could materially harm our business, operating results and financial condition.

Our operating results may fluctuate significantly, which could make our future results difficult to predict and could cause our operating results to fall below expectations.

Our operating results may fluctuate due to a variety of factors, a portion of which are outside of our control. As a result, comparing our results on a period-to-period basis may not be meaningful.

Factors that are difficult to predict and that could cause our operating results to fluctuate include:

•the timing and magnitude of orders, shipments and acceptance of our products in any quarter, including product returns, order rescheduling and cancellations by our customers;

•fluctuations or seasonality in demand and prices for our products;

•our ability to control the costs of the components we use or to timely adopt subsequent generations of components;

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•disruption in our supply chains, component availability and related procurement costs;

•reductions in customers’ budgets for IT purchases;

•changes in industry standards in the data storage industry;

•our ability to develop, introduce and ship new products and product enhancements that meet customer requirements and to effectively manage product transitions;

•changes in the competitive dynamics of our markets, including new entrants or discounting of product prices;

•our ability to control costs, including our operating expenses;

•the impact of adverse economic conditions and the impact of public health epidemics or pandemics, such as the COVID-19 pandemic; and

•future accounting pronouncements and changes in accounting policies.

The occurrence of any one of these factors could negatively affect our operating results in any particular quarter.

The sales prices of our products and services may fluctuate or decline, which may reduce our gross profits, revenue growth, and adversely impact our financial results.

The sales prices of our products and services may fluctuate or decline for a variety of reasons, including competitive pricing pressures, discounts, cost of components, a change in our mix of products and services, and the introduction of competing products or services or promotional programs. Competition continues to increase in the markets in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors may reduce the price of products or services that compete with ours or may bundle them with other products and services. Additionally, although we price our products and services predominantly in U.S. dollars, currency fluctuations in certain countries and regions may negatively impact actual prices that partners and customers are willing to pay in those countries and regions. Furthermore, we anticipate that the prices for our products will decrease over product life cycles. If we are required to decrease our prices to be competitive and are not able to offset this decrease by increases in the volume of sales or the sales of new products with higher margins, our gross margins and operating results could be adversely affected.

We derive the majority of our revenue from our FlashArray products, and a decline in demand for these products would cause our revenue to grow more slowly or to decline.

Our FlashArray products have historically accounted for the majority of our revenue and will continue to comprise a significant portion of our revenue for the foreseeable future, including through our subscription offerings. We have seen slower revenue growth in recent periods, which we believe has largely been driven by the pandemic. As a result, our revenue could be reduced by any decline or fluctuation in demand for these products, regardless of the reason. If demand for our core products slows or declines, we may not be able to increase our revenue or achieve and maintain profitability.

If we are unable to sell renewals of our ~~maintenance and support~~subscription services to our customers, our future revenue and operating results will be harmed.

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Existing customers may not renew their ~~maintenance and support~~subscription 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 if~~If 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 agreements~~subscription 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 subscription services are not immediately reflected in full in our results of operations.

~~We expect that~~Our revenue from ~~maintenance and support agreements will increase~~subscription services has been increasing as a percentage of total revenue over time. We are also increasing the number of our subscription-based offerings, such as Pure as-a-Service, though it is more difficult to predict the rate at which customers will adopt, and the rate at which our revenue will grow from these new offerings. We recognize ~~maintenance and support~~subscription services revenue ratably over the term of the relevant ~~service~~ period. As a result, much of the ~~maintenance and support~~subscription 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 support~~subscription 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 support~~subscription services is not reflected in full in our results of operations until future periods. ~~Also, it~~It is also difficult for us to rapidly increase our ~~maintenance and support~~subscription services revenue through additional sales in any period, as revenue from renewals must be recognized ratably over the applicable service period.

~~Adverse economic conditions~~We may require additional capital to support business growth, and this capital might not be available on acceptable terms, or ~~reduced data center spending~~at all.

We intend to continue to make investments to support our business growth and may ~~adversely impact~~require additional funds to support business initiatives, including the need to develop new products or enhance our ~~revenues~~existing products, enhance our operating infrastructure and ~~profitability.~~

~~Our operations~~acquire complementary businesses and ~~performance depend~~technologies. Accordingly, we may need to engage in ~~part on worldwide economic conditions~~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 ~~the impact these conditions~~any new equity securities we issue could have ~~on levels~~rights, preferences and privileges superior to those of ~~spending on data center technology. Global economic uncertainty and political and fiscal challenges~~holders of our common stock. Any debt financing we undertake in the ~~United States~~future could involve additional restrictive covenants relating to our capital raising activities and ~~abroad~~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 ~~adversely impact data center spending. Our business depends on~~be 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 health~~credit risk of some of our ~~current~~customers, which could harm our business, operating results and ~~prospective customers. Weak economic conditions, or a reduction~~financial 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 impact~~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.

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Risks Related to Our Operations

If we are unable to attract, motivate and retain sales, engineering and other key personnel, including our management team, we may not be able to increase our revenue and our business, operating results and financial condition could be harmed.

Our ability to increase our revenue depends on our ability to attract, motivate, and retain qualified sales, engineering and other key employees, including our management. These positions may require candidates with specific backgrounds in software and the storage industry, and competition for employees with such expertise is intense. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. To the extent that we are successful in hiring to fill these positions, we may need a significant amount of time to train new employees before they are effective and efficient in performing their jobs. From time to time, there may be changes in our management team, which could create short term uncertainty. All of our employees, including members of our management team and executive officers, are generally employed on an at-will basis, which means that they could terminate their employment with us at any time. If we are unable to attract, motivate and retain qualified sales, engineering and other key employees, including our management or if they are unable to work effectively or at all due to the COVID-19 pandemic, our business and operating results could suffer.

If we fail to adequately expand and optimize our sales force, our growth will be impeded.

We need to continue to expand and optimize our sales organization in order to grow our customer base and our business. We plan to continue to expand and train our sales force, both domestically and internationally. We must design and implement effective sales incentive programs, and it can take time before new sales representatives are fully trained and productive. We must adapt our sales processes for new sales and marketing approaches, including those required by the changes resulting from the pandemic. If we are unable to hire, develop and retain qualified sales personnel or if new sales personnel are unable to achieve desired productivity levels in a ~~number~~reasonable period of ~~ways, including~~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 ~~reducing~~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, ~~lengthening sales cycles~~support and ~~lowering prices~~engineering cultures and those of incumbent vendors, is a key competitive advantage and differentiator for our ~~products~~customers and ~~services.~~partners. As we grow and change or are required to adapt to changes in business operations as a result of the COVID-19 pandemic, we may find it difficult to maintain these important aspects of our company culture, which could limit our ability to innovate and operate effectively. Any failure to preserve our culture could also negatively affect our ability to retain and recruit personnel, continue to perform at current levels or execute on our business strategy.

Our long-term success depends, in part, on sales outside of the United States, which subjects us to costs and risks associated with international operations.

We maintain operations outside of the United States, which we have been expanding and intend to continue to expand in the future. As a company headquartered in the United States, conducting and expanding international operations subjects us to costs and risks that we may not generally face in the United States, including:

•exposure to foreign currency exchange rate risk;

•difficulties in collecting payments internationally;

•managing and staffing international operations;

•public health pandemics or epidemics, such as the COVID-19 pandemic;

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•establishing relationships with channel partners in international locations;

•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 and customs;

•significant fines, penalties and collateral consequences if we or our partners fail to comply with anti-bribery laws;

•heightened risk of improper, unfair or corrupt business practices in certain geographies;

•potentially adverse tax consequences, including repatriation of earnings;

•increased financial accounting and reporting burdens and complexities;

•political, social and economic instability abroad, terrorist attacks and security concerns in general; and

•reduced or varied protection for intellectual property rights in some countries.

The occurrence of any one of these risks could negatively affect our international operations and, consequently, our business, operating results and financial condition generally.

Our international operations, as well as changes in tax laws, could expose us to potentially adverse tax consequences.

The U.S. Tax law changes enacted through the Tax Cuts and Jobs Act (the Tax Act) in December 2017 are subject to further interpretations from the U.S. federal and state governments and regulatory organizations. Such interpretations could have a material adverse effect on our cash tax liabilities, results of operations, and financial condition.

We generally conduct our international operations through wholly owned subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Given the passage of the Tax Act and other global tax developments, we continue to evaluate our corporate structure and intercompany relationships. Future changes to U.S. and global tax laws may adversely impact our effective tax rate.

Our intercompany relationships are, and after the implementation of any changes to our corporate structure will continue to be, subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.

Third-party claims that we ~~are infringing the~~infringe their intellectual property rights ~~of others, whether successful or not,~~ could ~~subject us to~~be costly and ~~time-consuming litigation or require us to obtain expensive licenses, and~~harm our ~~business could be harmed.~~business.

There is a substantial amount of intellectual property litigation in the ~~flash-based~~data 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 ~~offering~~selling 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,

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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 giving~~which 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 ~~the~~claims 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 ~~700~~2,000 issued patents and patent applications in the United States and foreign countries. We cannot assure investors that future patents issued to us, if any, ~~patents~~ will ~~issue with respect to our currently pending patent applications in a manner that gives~~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 in actions against alleged infringers.~~unenforceable. Our issued ~~patents~~ and ~~any~~future 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~~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 ~~actions against alleged infringers.~~ protecting and defending our intellectual property or proprietary rights abroad.

Changes to the ~~patent laws~~intellectual 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 ~~defending~~defend intellectual property infringement claims and ~~to enforcing~~enforce 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.~~

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

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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 event~~if 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

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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 or that we would not be exposed to unknown liabilities. 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.

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~~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 upgrade our finance and accounting function, including the hiring of additional finance and accounting personnel, and implement additional policies and procedures associated with the financial statement close process. 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 subject us to potentially adverse tax consequences.~~

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. In the future, we may decide to reorganize our corporate tax structure and intercompany relationships to more closely align our corporate organization with the expansion of our international business activities. Although we anticipate that such steps could achieve a reduction in our overall effective tax rate in the future as a result of implementing the new corporate structure, our restructuring efforts will require us to incur expenses in the near term for which we may not realize any benefits.

Our intercompany relationships are, and after the implementation of our new corporate tax structure will continue to be, subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The

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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. In addition, following the implementation of our new corporate tax structure, if the intended tax treatment of the structure is not accepted by the applicable taxing authorities, there are changes in tax law that negatively impact the structure or we do not operate our business consistent with the structure and applicable tax laws and regulations, we may fail to achieve any tax advantages as a result of the new corporate structure, and our future operating results and financial condition may be negatively impacted.

Current U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the United States are repatriated to the United States, as well as changes to U.S. tax laws that may be enacted in the future, could impact the tax treatment of our foreign earnings. 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.

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 presence~~been 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 our~~future 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 adopted~~CCPA places additional requirements on the ~~General Data Protection Regulation, which~~handling of personal data and is ~~scheduled~~currently subject to ~~go into effect in May 2018~~a revision and ~~contains numerous requirements~~update process. The potential effects of this legislation are far-reaching and ~~changes, including more robust obligations on~~may require us to modify our data ~~processors~~processing practices and ~~heavier documentation requirements for data protection compliance programs by companies.~~policies and to incur substantial costs and expenses. Customers may choose to implement technological solutions to comply with such regulations that impact the performance and competitiveness of our products and solutions.

Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results and financial condition could be harmed. Even the perception of privacy concerns, whether or not valid, may harm our reputation and inhibit competitiveness and adoption of our products by current and future customers. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.

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Governmental regulations affecting the import or export of products could negatively affect our revenue.

The U.S. and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of some technologies, especially encryption technology. From time to time, governmental agencies have proposed additional regulation of encryption technology, such as requiring the escrow of imports or exports. If we fail to obtain required import or export approval for our products or its various components, our international and domestic sales could be harmed and our revenue may be adversely affected. In many cases, we rely on vendors and channel partners to handle logistics associated with the import and export of our products, so our visibility and control over these matters may be limited. In addition, failure to comply with such regulations could result in penalties, costs and restrictions on export privileges, which could harm our business, operating results and financial condition.

If we or our products suffer a cybersecurity or other security breach, we may lose customers and incur significant liabilities.

In the ordinary course of business, we store sensitive data on our internal systems, networks and servers, which may include intellectual property, our proprietary business information and that of our customers, suppliers and business partners and sales data, which may, on occasion, include personally identifiable information. Additionally, we design and sell products that allow our customers to store their data. The security of our own networks and the intrusion protection features of our products are both critical to our operations and business strategy.

Additionally, an effective attack on our products could disrupt the proper functioning of our products, allow unauthorized access to sensitive, proprietary or confidential information of ours or our customers, disrupt or temporarily interrupt our and our customers’ operations or cause other destructive outcomes, including the theft of information sufficient to engage in fraudulent transactions. The risk that these types of events could seriously harm our business is likely to increase as we expand our network of channel partners, resellers and authorized service providers and operate in more countries. The economic costs to us to eliminate or alleviate cyber or other security problems, viruses, worms, malicious software systems and security vulnerabilities could be significant and may be difficult to anticipate or measure because the damage may differ based on the identity and motive of the programmer or hacker, which are often difficult to identify. If any of these types of security breaches were to occur and we were unable to protect sensitive data, our relationships with our business partners and customers could be materially damaged, our reputation and brand could be materially harmed, use of our products could decrease and we could be exposed to a risk of loss or litigation and possible liability.

We may acquire other businesses which could require significant management attention, disrupt our business, dilute stockholder value, and adversely affect our operating results.

We may, from time to time, acquire complementary products, technologies or businesses, such as our acquisitions of Portworx in October 2020 and Compuverde AB in April 2019. We also may enter into relationships with other businesses in order to expand our product offerings, which could involve preferred or exclusive licenses, additional channels of distribution or discount pricing or investments in other companies. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these transactions may be subject to third-party or government approvals, which are beyond our control. Consequently, we can make no assurance that these transactions, once undertaken and announced, will close.

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These kinds of acquisitions or investments may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of acquired companies, particularly if the key personnel of the acquired business choose not to work for us, and we may have difficulty retaining the customers of any acquired business. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for development of our business. Any acquisition or investment could expose us to unknown liabilities. Moreover, we cannot assure investors that the anticipated benefits of any acquisition or investment will be realized. In connection with these types of transactions, we may issue additional equity securities that would dilute our stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to repay, incur large charges or substantial liabilities, encounter difficulties integrating diverse business cultures and become subject to adverse tax consequences, substantial depreciation or deferred compensation charges. These challenges related to acquisitions or investments could harm our business and financial condition.

General Risk Factors

Adverse economic conditions may harm our revenues and profitability.

Our operations and performance depend in part on worldwide economic conditions and the economic health of our current and prospective customers. Global economic uncertainty, civil unrest and political and fiscal challenges in the United States and abroad can arise suddenly and affect the rate of information technology spending and could adversely affect our customers' ability or willingness to purchase our products and services. For example, the global macroeconomic environment could be negatively affected by the growth rate in the economy of the European Union, China, or the United States, trade relations between the United States and China, the impact of public health epidemics or pandemics, such as the COVID-19 pandemic, political uncertainty in the Middle East and other geopolitical events. Additionally, the United Kingdom's exit from the European Union is disruptive and remains subject to the successful conclusion of a final withdrawal agreement between the parties. In the absence of such an agreement, there would be no transitional provisions and any exit from the European Union could lead to adverse economic consequences. Weak economic conditions would likely adversely impact our business, operating results and financial condition in a number of ways, including by reducing sales, lengthening sales cycles and lowering prices of our products and services.

Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events, and to interruption by man-made factors such as computer viruses or ~~terrorism.~~

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public health epidemics or pandemics, such as the COVID-19 pandemic.

We and our suppliers have operations in locations, including our headquarters in California, that are subject to earthquakes, fires, floods and other natural catastrophic events, such as severe weather and geological events, which could disrupt our operations or the operations of our customers and suppliers. Our customers affected by a natural disaster could postpone or cancel orders of our products, which could negatively impact our business. Moreover, should any of our key suppliers fail to deliver components to us as a result of a natural disaster, we may be unable to purchase these components in necessary quantities or may be forced to purchase components in the open market at significantly higher costs. We may also be forced to purchase components in advance of our normal supply chain demand to avoid potential market shortages. ~~We may not have adequate~~Our business interruption insurance may be insufficient to compensate us for losses due to a significant natural disaster or due to man-made factors. Any natural catastrophic events may also prevent our employees from being able to reach our offices in any jurisdiction around the world, and therefore impede our ability to conduct business as usual.

In addition, man-made factors, such as acts of terrorism or malicious computer viruses, and public health epidemics or pandemics, such as the COVID-19 pandemic, could cause disruptions in our or our customers’ businesses or the economy as a whole. To the extent that these disruptions result in delays or cancellations of customer orders or the deployment of our products, our business, operating results and financial condition could be harmed.

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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 have borrowed $250.0 million under this Credit Facility. We could repay and re-borrow funds under this Credit Facility at any time, subject to customary borrowing conditions, for general corporate purposes and working capital.

The agreement governing our senior secured revolving Credit Facility limits our ability, among other things, to: incur additional secured indebtedness; sell, transfer, license or dispose of assets; consolidate or merge; enter into transactions with our affiliates; and incur liens. In addition, our senior secured revolving Credit Facility contains financial and other restrictive covenants that limit our ability to engage in activities that may be in our long term best interest, such as, subject to permitted exceptions, making capital expenditures in excess of certain thresholds, making investments, loans and other advances, and prepaying any additional indebtedness while our indebtedness under our senior secured revolving Credit Facility is outstanding. Our failure to comply with financial and other restrictive covenants could result in an event of default, which if not cured or waived, could result in the lenders requiring immediate payment of all outstanding borrowings or foreclosing on collateral pledged to them to secure the indebtedness.

We may not have the ability to raise the funds necessary to settle conversions of the Notes or to repurchase the Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Notes.

Holders of the Notes will have the right to require us to repurchase all or a portion of their Notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest. In addition, if a make-whole fundamental change (as defined in the indenture for the Notes) occurs prior to the maturity date of the Notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its Notes in connection with such make-whole fundamental change. Upon a conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or pay cash with respect to Notes being converted.

In addition, our ability to repurchase or to pay cash upon conversion of the Notes may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase the Notes at a time when the repurchase is required by the indenture governing the Notes or to pay cash upon conversion of the Notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or to pay cash upon conversion of the Notes.

Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the amounts payable under the Notes, depends on our future performance, which is subject to economic, financial, competitive and other 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 generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or 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.

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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 subsidiaries may incur substantial additional debt in the future, subject to the restrictions contained in our future debt instruments, some of which may be secured 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 future debt, recapitalizing our debt or taking a number of other actions that could have the effect of diminishing our ability to 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 conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.

If the conditional conversion feature of the Notes is triggered, holders of the Notes will be entitled to convert the Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than by paying cash in lieu of delivering any fractional share), we may settle all or a portion of our conversion obligation in cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The capped call transactions may affect the value of the Notes and our common stock.

In connection with the Notes, we entered into capped call transactions with certain financial institutions (the option counterparties). The capped call transactions are expected generally to reduce the potential dilution upon any conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount upon conversion of the Notes, with such reduction and/or offset subject to a cap.

In connection with establishing their initial hedges of the capped call transactions, the option counterparties and/or their respective affiliates purchased shares of our common stock and/or entered into various derivative transactions with respect to our common stock. This activity could have increased (or reduced the size of any decrease in) the market price of our common stock or the Notes at that time.

In addition, the 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 notes or following any repurchase of notes by us on any fundamental change repurchase date or otherwise). This activity could also cause or avoid an increase or a decrease in the price of our common stock or the Notes.

The potential effect, if any, of these transactions and activities on the price of our common stock or the Notes 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 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. For example, we have two large stockholders that each hold over 10% of our outstanding common stock. 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.

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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 ~~$19.74,~~$28.66, through December ~~1, 2017.~~4, 2020. 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 changes~~new or updated research or reports by securities analysts, including the publication of unfavorable reports or change in ~~the expectations~~recommendation or downgrading of ~~investors or securities analysts;~~our common stock;

•actual or anticipated developments in our competitors’ businesses or the competitive landscape generally;

•litigation involving us, our industry or both;

•general economic conditions and ~~trends;~~trends, including the impact of the COVID pandemic;

•major catastrophic events;

•sales of large blocks of our stock; or

•departures of key personnel.

The stock markets in general, and market prices for the securities of technology-based companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. A certain degree of stock price volatility can be attributed to being a newly public company. These broad market and industry fluctuations may adversely affect the market price of our Class A common stock, regardless of our operating performance. In several recent situations where the ~~market~~ price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the ~~stock, such as the consolidated class action we currently are defending against.~~stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our business, operating results and financial condition.

We cannot guarantee that our share repurchase program will enhance shareholder value, and share repurchases could affect the price of our common stock.

In August 2019, our board of directors authorized a $150 million share repurchase program, which is being funded from available working capital. A large portion of the currently authorized program has been used. 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 and~~If one or more of these analysts downgrades our stock, lowers their price target, or publishes ~~inaccurate~~unfavorable or ~~unfavorable~~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 require changes in corporate governance practices of public companies. We expect these rules and regulations to continue to increase our legal

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and financial compliance costs and to make some activities more time-consuming and costly. We will continue to incur additional costs associated with our public company reporting requirements. We expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors or as executive officers.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the ~~trading~~ price of our ~~Class A~~ common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could depress the trading price of our ~~Class A~~ common stock by acting to discourage, delay or prevent a change of control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:

provide for a dual class common stock structure, so that certain stockholders will have significant influence over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets and which could discourage others from initiating any potential merger, takeover or other change of control transaction that other stockholders may view as beneficial;

•establish a classified board of directors so that not all members of our board of directors are elected at one time;

•authorize the issuance of “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt;

•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

•prohibit stockholders from calling a special meeting of our stockholders;

•provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and

•establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder and which may discourage, delay, or prevent a change of control of our company.

Any provision of our amended and restated certificate of incorporation, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our ~~Class A~~ common stock.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be ~~the~~ exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may

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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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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~Not applicable.~~Purchases of Equity Securities by the Issuer

The following table summarizes our stock repurchase activity for the third quarter of fiscal 2021 (in thousands except for price per share):


Period	Average 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
August 3 - August 30	$	—	—	$	45,000
August 31 - September 27	$	14.64	510	$	37,532
September 28 - November 1	$	16.37	850	$	23,616

(1) In August 2019, our board of directors authorized us to repurchase up to $150.0 million of our outstanding common stock under our share repurchase program. See "Liquidity and Capital Resources—Share Repurchase Program" included under Part I, Item 2 in this Quarterly Report on Form 10-Q.

The following table summarizes the shares of restricted common stock that were delivered by certain employees upon vesting of equity awards to satisfy tax withholding requirements during the third quarter of fiscal 2021 (in thousands except for price per share):


Period	Average Price per Share Delivered		Total Number of Shares Delivered to Satisfy Tax Withholding Requirements	Approximate Dollar Value of Shares Delivered to Satisfy Tax Withholding Requirements
August 3 - August 30	$	—	—	$	—
August 31 - September 27	$	14.48	86	$	1,239
September 28 - November 1	$	—	—	$	—

Item 3. Defaults upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits.

~~See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed~~

Incorporation By Reference

Exhibit
Number

Description

Form

SEC File No.

Exhibit

Filing Date

2.1*

Agreement and Plan of Merger, dated as of September 14, 2020, among Pure Storage, Inc., Porsche Acquisition Corp., Portworx Inc., and Shareholder Representative Services LLC.

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

Indenture dated as of April 9, 2018 by and between Pure Storage, Inc. and U.S. Bank National Association, as Trustee

8-K

001-37570

4.1

4/10/2018

4.3

Form of Global Note, representing Pure Storage, Inc.'s 0.125% Convertible Senior Notes due 2023 (included as Exhibit A to the Indenture incorporated by reference as Exhibit 4.2 hereto)

8-K

001-37570

4.2

4/10/2018

4.4

Reference is made to Exhibits 3.1 and 3.2

10.12*+

Pure Storage, Inc. Change in Control Severance Benefit Plan, effective as of November 24, 2020

10.14*+

Transition Services, Separation & Release Agreement by and between Pure Storage, Inc. and Paul Mountford dated as of November 3, 2020.

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.

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.

99.1

Form of Confirmation for Capped Call Transactions.

8-K

001-37570

99.1

4/10/2018

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover 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 ~~furnished with this report, which Exhibit Index is incorporated herein by reference.~~

compensatory plan.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				PURE STORAGE, INC.

Date:			December 9, 2020	~~PURE STORAGE, INC.~~
By:
~~Date:~~	~~December 8, 2017~~	~~By:~~	/s/ CHARLES GIANCARLO
					Charles Giancarlo
					Chief Executive Officer and Director (Principal Executive Officer)

Date:			December ~~8, 2017~~9, 2020	By:	/s/ ~~TIMOTHY RIITTERS~~KEVAN KRYSLER
					~~Timothy Riitters~~Kevan Krysler
					Chief Financial Officer (Principal Financial and Accounting Officer)

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~~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

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+*

Offer Letter, by and between Pure Storage, Inc. and Charlie Giancarlo, dated August 22, 2017.

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.

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.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** Furnished herewith.

~~+ Indicates management contract or compensatory plan.~~



	Three Months Ended October 31,						Nine Months Ended October 31,
	2016			2017			2016			2017
Revenue:
Product	$	160,523		$	223,196		$	403,181		$	536,634
Support	36,433			54,478			96,936			148,132
Total revenue	196,956			277,674			500,117			684,766
Cost of revenue:
Product	54,725			75,392			131,618			179,289
Support	14,597			20,467			41,531			56,569
Total cost of revenue	69,322			95,859			173,149			235,858
Gross profit	127,634			181,815			326,968			448,908
Operating expenses:
Research and development	61,612			68,927			173,185			203,716
Sales and marketing	91,392			129,299			262,073			346,896
General and administrative	22,810			25,406			64,021			67,664
Legal settlement	30,000			—			30,000			—
Total operating expenses	205,814			223,632			529,279			618,276
Loss from operations	(78,180		)	(41,817		)	(202,311		)	(169,368		)
Other income (expense), net	(192		)	1,138			1,127			6,399
Loss before provision for income taxes	(78,372		)	(40,679		)	(201,184		)	(162,969		)
Provision for income taxes	441			970			967			2,755
Net loss	$	(78,813	)	$	(41,649	)	$	(202,151	)	$	(165,724	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.40	)	$	(0.20	)	$	(1.05	)	$	(0.79	)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	195,807			213,274			192,637			209,456



	As of 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 notes	148,298		22		(289		)	148,031		13,226		134,805		—
U.S. government agencies	40,398		2		(159		)	40,241		—		40,241		—
Corporate debt securities	185,701		242		(379		)	185,564		—		185,564		—
Foreign government bonds	2,377		2		(3		)	2,376		—		2,376		—
Total	$	376,774	$	268	$	(830	)	$	388,946	$	13,226	$	362,986	$	12,734



Years Ending January 31,	Estimated Future Amortization Expense
Remainder of 2018	$	376
2019	1,504
2020	1,504
2021	1,504
2022	544
Total	$	5,432



	As of January 31, 2017		As of October 31, 2017
Sales and use tax payable	$	540	$	1,256
Accrued professional fees	1,765		1,430
Accrued marketing	6,718		8,899
Accrued travel and entertainment expenses	2,235		4,112
Income tax payable	1,135		1,620
Other accrued liabilities	9,304		7,628
Total accrued expenses and other liabilities	$	21,697	$	24,945