false2020Q30001474432--01-31P1YP2Y00014744322020-02-032020-11-01xbrli:shares00014744322020-12-04iso4217:USD00014744322020-02-0200014744322020-11-01iso4217:USDxbrli:shares0001474432us-gaap:CommonClassAMember2020-11-010001474432us-gaap:CommonClassBMember2020-02-020001474432us-gaap:CommonClassBMember2020-11-010001474432us-gaap:CommonClassAMember2020-02-020001474432us-gaap:ProductMember2019-08-012019-10-310001474432us-gaap:ProductMember2020-08-032020-11-010001474432us-gaap:ProductMember2019-02-012019-10-310001474432us-gaap:ProductMember2020-02-032020-11-010001474432us-gaap:ServiceMember2019-08-012019-10-310001474432us-gaap:ServiceMember2020-08-032020-11-010001474432us-gaap:ServiceMember2019-02-012019-10-310001474432us-gaap:ServiceMember2020-02-032020-11-0100014744322019-08-012019-10-3100014744322020-08-032020-11-0100014744322019-02-012019-10-310001474432us-gaap:CommonStockMember2019-07-310001474432us-gaap:AdditionalPaidInCapitalMember2019-07-310001474432us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2019-07-310001474432us-gaap:RetainedEarningsMember2019-07-3100014744322019-07-310001474432us-gaap:CommonStockMember2019-08-012019-10-310001474432us-gaap:AdditionalPaidInCapitalMember2019-08-012019-10-310001474432us-gaap:CommonStockMemberus-gaap:RestrictedStockUnitsRSUMember2019-08-012019-10-310001474432us-gaap:AdditionalPaidInCapitalMemberus-gaap:RestrictedStockUnitsRSUMember2019-08-012019-10-310001474432us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2019-08-012019-10-310001474432us-gaap:RetainedEarningsMember2019-08-012019-10-310001474432us-gaap:CommonStockMember2019-10-310001474432us-gaap:AdditionalPaidInCapitalMember2019-10-310001474432us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2019-10-310001474432us-gaap:RetainedEarningsMember2019-10-3100014744322019-10-310001474432us-gaap:CommonStockMember2020-08-020001474432us-gaap:AdditionalPaidInCapitalMember2020-08-020001474432us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-08-020001474432us-gaap:RetainedEarningsMember2020-08-0200014744322020-08-020001474432us-gaap:CommonStockMember2020-08-032020-11-010001474432us-gaap:AdditionalPaidInCapitalMember2020-08-032020-11-010001474432us-gaap:CommonStockMemberus-gaap:RestrictedStockUnitsRSUMember2020-08-032020-11-010001474432us-gaap:AdditionalPaidInCapitalMemberus-gaap:RestrictedStockUnitsRSUMember2020-08-032020-11-010001474432us-gaap:CommonStockMemberus-gaap:RestrictedStockMember2020-08-032020-11-010001474432us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-08-032020-11-010001474432us-gaap:RetainedEarningsMember2020-08-032020-11-010001474432us-gaap:CommonStockMember2020-11-010001474432us-gaap:AdditionalPaidInCapitalMember2020-11-010001474432us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-11-010001474432us-gaap:RetainedEarningsMember2020-11-010001474432us-gaap:CommonStockMember2019-01-310001474432us-gaap:AdditionalPaidInCapitalMember2019-01-310001474432us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2019-01-310001474432us-gaap:RetainedEarningsMember2019-01-3100014744322019-01-310001474432us-gaap:CommonStockMember2019-02-012019-10-310001474432us-gaap:AdditionalPaidInCapitalMember2019-02-012019-10-310001474432us-gaap:CommonStockMemberus-gaap:RestrictedStockUnitsRSUMember2019-02-012019-10-310001474432us-gaap:AdditionalPaidInCapitalMemberus-gaap:RestrictedStockUnitsRSUMember2019-02-012019-10-310001474432us-gaap:CommonStockMemberus-gaap:RestrictedStockMember2019-02-012019-10-310001474432us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2019-02-012019-10-310001474432us-gaap:RetainedEarningsMember2019-02-012019-10-310001474432us-gaap:CommonStockMember2020-02-020001474432us-gaap:AdditionalPaidInCapitalMember2020-02-020001474432us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-02-020001474432us-gaap:RetainedEarningsMember2020-02-020001474432us-gaap:CommonStockMember2020-02-032020-11-010001474432us-gaap:AdditionalPaidInCapitalMember2020-02-032020-11-010001474432us-gaap:CommonStockMemberus-gaap:RestrictedStockUnitsRSUMember2020-02-032020-11-010001474432us-gaap:AdditionalPaidInCapitalMemberus-gaap:RestrictedStockUnitsRSUMember2020-02-032020-11-010001474432us-gaap:CommonStockMemberus-gaap:RestrictedStockMember2020-02-032020-11-010001474432us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-02-032020-11-010001474432us-gaap:RetainedEarningsMember2020-02-032020-11-010001474432us-gaap:ComputerEquipmentMember2020-02-032020-05-030001474432srt:MinimumMemberus-gaap:ComputerEquipmentMember2019-02-012019-04-300001474432srt:MaximumMemberus-gaap:ComputerEquipmentMember2019-02-012019-04-300001474432us-gaap:ChangeInAccountingMethodAccountedForAsChangeInEstimateMember2020-08-032020-11-010001474432us-gaap:ChangeInAccountingMethodAccountedForAsChangeInEstimateMember2020-02-032020-11-01pstg:numberOfRevenueSources0001474432srt:MinimumMemberpstg:SubscriptionServiceRevenueMember2020-11-022020-11-010001474432srt:MaximumMemberpstg:SubscriptionServiceRevenueMember2020-11-022020-11-010001474432us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Member2020-02-020001474432us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentDebtSecuritiesMember2020-02-020001474432us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2020-02-020001474432us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2020-02-020001474432us-gaap:FairValueInputsLevel2Memberus-gaap:ForeignGovernmentDebtMember2020-02-020001474432us-gaap:FairValueInputsLevel2Memberus-gaap:AssetBackedSecuritiesMember2020-02-020001474432us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Member2020-11-010001474432us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentDebtSecuritiesMember2020-11-010001474432us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2020-11-010001474432us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2020-11-010001474432us-gaap:FairValueInputsLevel2Memberus-gaap:ForeignGovernmentDebtMember2020-11-010001474432us-gaap:FairValueInputsLevel2Memberus-gaap:AssetBackedSecuritiesMember2020-11-010001474432us-gaap:USGovernmentDebtSecuritiesMember2020-02-020001474432us-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-02-020001474432us-gaap:CorporateDebtSecuritiesMember2020-02-020001474432us-gaap:USGovernmentDebtSecuritiesMember2020-11-010001474432us-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-11-010001474432us-gaap:CorporateDebtSecuritiesMember2020-11-010001474432us-gaap:ForeignGovernmentDebtMember2020-11-010001474432us-gaap:AssetBackedSecuritiesMember2020-11-010001474432pstg:PortworxMember2020-10-012020-10-310001474432pstg:PortworxMemberpstg:ReplacementAwardsMember2020-10-012020-10-310001474432pstg:ReplacementAwardsForServicesPerformedPriorToTheAcquisitionMember2020-10-012020-10-310001474432pstg:PortworxMemberpstg:ReplacementAwardsForFutureServicesMember2020-10-012020-10-310001474432pstg:PortworxMemberus-gaap:RestrictedStockUnitsRSUMember2020-10-012020-10-310001474432pstg:PortworxMember2020-10-310001474432pstg:PortworxMemberus-gaap:DevelopedTechnologyRightsMember2020-10-310001474432pstg:PortworxMemberus-gaap:DevelopedTechnologyRightsMember2020-10-012020-10-310001474432us-gaap:CustomerRelationshipsMemberpstg:PortworxMember2020-10-310001474432us-gaap:CustomerRelationshipsMemberpstg:PortworxMember2020-10-012020-10-310001474432pstg:PortworxMemberus-gaap:TradeNamesMember2020-10-310001474432pstg:PortworxMemberus-gaap:TradeNamesMember2020-10-012020-10-310001474432pstg:TestEquipmentMember2020-02-020001474432pstg:TestEquipmentMember2020-11-010001474432us-gaap:ComputerEquipmentMember2020-02-020001474432us-gaap:ComputerEquipmentMember2020-11-010001474432us-gaap:FurnitureAndFixturesMember2020-02-020001474432us-gaap:FurnitureAndFixturesMember2020-11-010001474432us-gaap:LeaseholdImprovementsMember2020-02-020001474432us-gaap:LeaseholdImprovementsMember2020-11-010001474432us-gaap:PatentedTechnologyMember2020-02-020001474432us-gaap:PatentedTechnologyMember2020-11-010001474432us-gaap:DevelopedTechnologyRightsMember2020-02-020001474432us-gaap:DevelopedTechnologyRightsMember2020-11-010001474432us-gaap:CustomerRelationshipsMember2020-02-020001474432us-gaap:CustomerRelationshipsMember2020-11-010001474432us-gaap:TradeNamesMember2020-02-020001474432us-gaap:TradeNamesMember2020-11-010001474432us-gaap:PatentedTechnologyMember2020-02-032020-11-010001474432us-gaap:DevelopedTechnologyRightsMember2020-02-032020-11-010001474432us-gaap:CustomerRelationshipsMember2020-02-032020-11-010001474432us-gaap:TradeNamesMember2020-02-032020-11-01xbrli:pure0001474432pstg:ProductRevenueAndSupportSubscriptionRevenueMember2019-07-310001474432pstg:ProductRevenueAndSupportSubscriptionRevenueMember2020-08-020001474432pstg:ProductRevenueAndSupportSubscriptionRevenueMember2019-01-310001474432pstg:ProductRevenueAndSupportSubscriptionRevenueMember2020-02-020001474432pstg:ProductRevenueAndSupportSubscriptionRevenueMember2019-08-012019-10-310001474432pstg:ProductRevenueAndSupportSubscriptionRevenueMember2020-08-032020-11-010001474432pstg:ProductRevenueAndSupportSubscriptionRevenueMember2019-02-012019-10-310001474432pstg:ProductRevenueAndSupportSubscriptionRevenueMember2020-02-032020-11-010001474432pstg:ProductRevenueAndSupportSubscriptionRevenueMember2019-10-310001474432pstg:ProductRevenueAndSupportSubscriptionRevenueMember2020-11-0100014744322020-11-022020-11-010001474432us-gaap:ConvertibleDebtMember2018-04-300001474432us-gaap:ConvertibleDebtMember2018-04-012018-04-300001474432us-gaap:ConvertibleDebtMemberus-gaap:CommonClassAMember2018-04-012018-04-300001474432us-gaap:ConvertibleDebtMemberus-gaap:CommonClassAMember2018-04-30pstg:day0001474432us-gaap:ConvertibleDebtMemberus-gaap:CommonClassAMemberpstg:AnyFiscalQuarterCommencingAfterTheFiscalQuarterEndingOnJuly312018Member2018-04-012018-04-300001474432pstg:FiveBusinessDayPeriodAfterAnyFiveConsecutiveTradingDayPeriodMemberus-gaap:ConvertibleDebtMemberus-gaap:CommonClassAMember2018-04-012018-04-300001474432us-gaap:ConvertibleDebtMemberpstg:ImmediatelyPrecedingTheDateOnWhichWeProvideNoticeOfRedemptionMemberus-gaap:CommonClassAMember2018-04-012018-04-3000014744322018-04-300001474432us-gaap:ConvertibleDebtMember2018-04-300001474432us-gaap:AdditionalPaidInCapitalMember2018-04-300001474432us-gaap:ConvertibleDebtMember2019-10-310001474432us-gaap:ConvertibleDebtMember2020-11-010001474432us-gaap:AdditionalPaidInCapitalMember2018-04-012018-04-300001474432us-gaap:ConvertibleDebtMember2020-11-010001474432us-gaap:ConvertibleDebtMember2020-02-032020-11-010001474432us-gaap:ConvertibleDebtMember2019-08-012019-10-310001474432us-gaap:ConvertibleDebtMember2020-08-032020-11-010001474432us-gaap:ConvertibleDebtMember2019-02-012019-10-310001474432pstg:CappedCallMember2018-04-012018-04-300001474432pstg:CappedCallMemberus-gaap:CommonClassAMember2018-07-310001474432pstg:CappedCallMemberus-gaap:CommonClassAMember2018-04-040001474432us-gaap:CommonClassAMember2018-07-310001474432us-gaap:RevolvingCreditFacilityMember2020-08-242020-08-240001474432us-gaap:RevolvingCreditFacilityMember2020-08-240001474432us-gaap:RevolvingCreditFacilityMember2020-10-012020-10-310001474432us-gaap:BaseRateMembersrt:MinimumMemberus-gaap:RevolvingCreditFacilityMember2020-08-242020-08-240001474432us-gaap:BaseRateMembersrt:MaximumMemberus-gaap:RevolvingCreditFacilityMember2020-08-242020-08-240001474432us-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:InterestRateFloorMember2020-08-240001474432srt:MinimumMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-08-242020-08-240001474432srt:MaximumMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-08-242020-08-240001474432srt:MinimumMemberus-gaap:RevolvingCreditFacilityMember2020-08-242020-08-240001474432srt:MaximumMemberus-gaap:RevolvingCreditFacilityMember2020-08-242020-08-240001474432us-gaap:RevolvingCreditFacilityMember2020-11-010001474432us-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-08-032020-11-010001474432us-gaap:RevolvingCreditFacilityMember2020-08-032020-11-01pstg:financial_ratio0001474432srt:ScenarioForecastMemberus-gaap:RevolvingCreditFacilityMember2020-11-022021-01-3100014744322020-09-012020-09-300001474432pstg:DataCenterMember2020-11-010001474432us-gaap:FacilityClosingMember2020-02-032020-11-010001474432pstg:COVID19PandemicCostsMember2020-02-032020-11-010001474432us-gaap:RestructuringChargesMemberpstg:COVID19PandemicCostsMember2020-02-032020-11-010001474432us-gaap:CostOfSalesMemberpstg:COVID19PandemicCostsMember2020-02-032020-11-01pstg:stock_class0001474432us-gaap:CommonClassAMember2019-08-31pstg:plan0001474432srt:MinimumMember2020-02-032020-11-010001474432srt:MaximumMember2020-02-032020-11-010001474432pstg:A2020PortworxEquityIncentivePlanMember2020-10-310001474432us-gaap:CommonClassAMemberpstg:TwentyFifteenEmployeeStockPurchasePlanMember2020-11-010001474432us-gaap:CommonClassAMemberpstg:TwentyFifteenEmployeeStockPurchasePlanMember2020-02-032020-11-010001474432pstg:TwentyFifteenEmployeeStockPurchasePlanMember2020-02-032020-11-01pstg:period0001474432pstg:TwentyFifteenEmployeeStockPurchasePlanMember2020-11-010001474432pstg:TwentyFifteenEmployeeStockPurchasePlanMember2019-08-012019-10-310001474432pstg:TwentyFifteenEmployeeStockPurchasePlanMember2020-08-032020-11-010001474432pstg:TwentyFifteenEmployeeStockPurchasePlanMember2019-02-012019-10-3100014744322020-02-032020-08-020001474432us-gaap:CommonClassAMember2020-02-032020-11-010001474432us-gaap:CommonClassAMember2020-08-032020-11-010001474432us-gaap:EmployeeStockOptionMember2020-08-032020-11-010001474432us-gaap:EmployeeStockOptionMember2019-08-012019-10-310001474432us-gaap:EmployeeStockOptionMember2019-02-012019-10-310001474432us-gaap:EmployeeStockOptionMember2020-02-032020-11-010001474432us-gaap:RestrictedStockUnitsRSUMember2020-02-020001474432us-gaap:RestrictedStockUnitsRSUMember2020-02-032020-11-010001474432us-gaap:RestrictedStockUnitsRSUMember2020-11-010001474432pstg:PerformanceRestrictedStockUnitsPRSUsMember2020-08-032020-11-010001474432pstg:PerformanceRestrictedStockUnitsPRSUsMember2020-02-032020-11-010001474432srt:MinimumMemberpstg:PerformanceRestrictedStockUnitsPRSUsMember2020-08-032020-11-010001474432srt:MaximumMemberpstg:PerformanceRestrictedStockUnitsPRSUsMember2020-08-032020-11-010001474432us-gaap:RestrictedStockUnitsRSUMember2019-08-012019-10-310001474432us-gaap:RestrictedStockUnitsRSUMember2020-08-032020-11-010001474432us-gaap:RestrictedStockUnitsRSUMember2019-02-012019-10-310001474432us-gaap:RestrictedStockMember2020-02-020001474432us-gaap:RestrictedStockMember2020-02-032020-11-010001474432us-gaap:RestrictedStockMember2020-11-010001474432us-gaap:RestrictedStockMember2019-08-012019-10-310001474432us-gaap:RestrictedStockMember2020-08-032020-11-010001474432us-gaap:RestrictedStockMember2019-02-012019-10-310001474432pstg:CostOfRevenueProductMember2019-08-012019-10-310001474432pstg:CostOfRevenueProductMember2020-08-032020-11-010001474432pstg:CostOfRevenueProductMember2019-02-012019-10-310001474432pstg:CostOfRevenueProductMember2020-02-032020-11-010001474432pstg:CostOfRevenueSupportMember2019-08-012019-10-310001474432pstg:CostOfRevenueSupportMember2020-08-032020-11-010001474432pstg:CostOfRevenueSupportMember2019-02-012019-10-310001474432pstg:CostOfRevenueSupportMember2020-02-032020-11-010001474432us-gaap:ResearchAndDevelopmentExpenseMember2019-08-012019-10-310001474432us-gaap:ResearchAndDevelopmentExpenseMember2020-08-032020-11-010001474432us-gaap:ResearchAndDevelopmentExpenseMember2019-02-012019-10-310001474432us-gaap:ResearchAndDevelopmentExpenseMember2020-02-032020-11-010001474432us-gaap:SellingAndMarketingExpenseMember2019-08-012019-10-310001474432us-gaap:SellingAndMarketingExpenseMember2020-08-032020-11-010001474432us-gaap:SellingAndMarketingExpenseMember2019-02-012019-10-310001474432us-gaap:SellingAndMarketingExpenseMember2020-02-032020-11-010001474432us-gaap:GeneralAndAdministrativeExpenseMember2019-08-012019-10-310001474432us-gaap:GeneralAndAdministrativeExpenseMember2020-08-032020-11-010001474432us-gaap:GeneralAndAdministrativeExpenseMember2019-02-012019-10-310001474432us-gaap:GeneralAndAdministrativeExpenseMember2020-02-032020-11-010001474432us-gaap:EmployeeStockOptionMember2019-08-012019-10-310001474432us-gaap:EmployeeStockOptionMember2020-08-032020-11-010001474432us-gaap:EmployeeStockOptionMember2019-02-012019-10-310001474432us-gaap:EmployeeStockOptionMember2020-02-032020-11-010001474432us-gaap:RestrictedStockUnitsRSUMember2019-08-012019-10-310001474432us-gaap:RestrictedStockUnitsRSUMember2020-08-032020-11-010001474432us-gaap:RestrictedStockUnitsRSUMember2019-02-012019-10-310001474432us-gaap:RestrictedStockUnitsRSUMember2020-02-032020-11-010001474432pstg:RestrictedStockAndEarlyExercisedStockOptionsMember2019-08-012019-10-310001474432pstg:RestrictedStockAndEarlyExercisedStockOptionsMember2020-08-032020-11-010001474432pstg:RestrictedStockAndEarlyExercisedStockOptionsMember2019-02-012019-10-310001474432pstg:RestrictedStockAndEarlyExercisedStockOptionsMember2020-02-032020-11-010001474432us-gaap:ConvertibleDebtSecuritiesMember2019-08-012019-10-310001474432us-gaap:ConvertibleDebtSecuritiesMember2020-08-032020-11-010001474432us-gaap:ConvertibleDebtSecuritiesMember2019-02-012019-10-310001474432us-gaap:ConvertibleDebtSecuritiesMember2020-02-032020-11-010001474432us-gaap:EquityUnitPurchaseAgreementsMember2019-08-012019-10-310001474432us-gaap:EquityUnitPurchaseAgreementsMember2020-08-032020-11-010001474432us-gaap:EquityUnitPurchaseAgreementsMember2019-02-012019-10-310001474432us-gaap:EquityUnitPurchaseAgreementsMember2020-02-032020-11-01pstg:segmentpstg:manager0001474432country:US2019-08-012019-10-310001474432country:US2020-08-032020-11-010001474432country:US2019-02-012019-10-310001474432country:US2020-02-032020-11-010001474432us-gaap:NonUsMember2019-08-012019-10-310001474432us-gaap:NonUsMember2020-08-032020-11-010001474432us-gaap:NonUsMember2019-02-012019-10-310001474432us-gaap:NonUsMember2020-02-032020-11-010001474432country:US2020-02-020001474432country:US2020-11-010001474432us-gaap:NonUsMember2020-02-020001474432us-gaap:NonUsMember2020-11-01

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 1, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to   
Commission File Number: 001-37570
Pure Storage, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware27-1069557
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
650 Castro Street, Suite 400
Mountain View, California
94041
(Address of principal executive offices, including zip code)

(800) 379-7873
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per sharePSTGNew 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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerx Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. o

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

As of December 4, 2020, the registrant had 272,810,989 shares of its Class A common stock outstanding.


Table of Contents
PURE STORAGE, INC.
FORM 10-Q for the Quarter Ended November 1, 2020
Table of Contents
 
  Page
 
PART I.
 
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II. 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



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 profitability and growth, our expectations regarding demand for our products and services and trends in the external storage market, our expectations that sales prices may decrease or fluctuate over time, our plans to expand and continue to invest internationally, our plans to continue investing in marketing, sales, support and research and development, as well as 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 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 alternative offerings from incumbent, emerging and public cloud vendors, our expectations concerning relationships with third parties, including our partners, customers and contract manufacturers, the impact of the Portworx acquisition and technology, the adequacy of our intellectual property rights, expectations concerning potential legal proceedings and related 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.
ii

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
ASSETS  
Current assets:  
Cash and cash equivalents$362,635 $263,702 
Marketable securities936,518 937,718 
Accounts receivable, net of allowance of $542 and $558
458,643 378,193 
Inventory38,518 43,152 
Deferred commissions, current37,148 42,728 
Prepaid expenses and other current assets56,930 77,813 
Total current assets1,890,392 1,743,306 
Property and equipment, net122,740 158,200 
Operating lease right-of-use assets112,854 137,856 
Deferred commissions, non-current102,056 109,361 
Intangible assets, net58,257 81,075 
Goodwill37,584 360,997 
Restricted cash15,287 11,349 
Other assets, non-current25,034 50,851 
Total assets$2,364,204 $2,652,995 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$77,651 $89,369 
Accrued compensation and benefits106,592 83,163 
Accrued expenses and other liabilities47,223 47,939 
Operating lease liabilities, current27,264 30,902 
Deferred revenue, current356,011 408,086 
Total current liabilities614,741 659,459 
Long-term debt477,007 748,422 
Operating lease liabilities, non-current92,977 124,382 
Deferred revenue, non-current341,277 354,678 
Other liabilities, non-current8,084 30,973 
Total liabilities1,534,086 1,917,914 
Commitments and contingencies (Note 8)
Stockholders’ equity:  
Preferred stock, par value of $0.0001 per share— 20,000 shares authorized; no shares issued and outstanding
  
Class A and Class B common stock, par value of $0.0001 per share—2,250,000 (Class A 2,000,000, Class B 250,000) shares authorized; 264,008 and 272,040 Class A shares issued and outstanding
26 27 
Additional paid-in capital2,107,579 2,238,714 
Accumulated other comprehensive income5,449 9,059 
Accumulated deficit(1,282,936)(1,512,719)
Total stockholders’ equity830,118 735,081 
Total liabilities and stockholders’ equity$2,364,204 $2,652,995 
 
See the accompanying notes to condensed consolidated financial statements.
1

Table of Contents

PURE STORAGE, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data, unaudited)
 
Third Quarter of Fiscal
First Three Quarters of Fiscal
 2020202120202021
Revenue:  
Product$323,268 $274,470 $862,137 $793,718 
Subscription services105,141 136,149 289,299 387,743 
Total revenue428,409 410,619 1,151,436 1,181,461 
Cost of revenue:  
Product89,998 86,661 259,460 240,677 
Subscription services37,773 47,442 106,632 132,717 
Total cost of revenue127,771 134,103 366,092 373,394 
Gross profit300,638 276,516 785,344 808,067 
Operating expenses:  
Research and development106,663 122,981 318,758 350,079 
Sales and marketing184,819 172,282 537,633 517,149 
General and administrative37,416 46,467 119,542 132,063 
Restructuring and other   22,990 
Total operating expenses328,898 341,730 975,933 1,022,281 
Loss from operations(28,260)(65,214)(190,589)(214,214)
Other income (expense), net9 (4,887)(2,459)(6,700)
Loss before provision for income taxes(28,251)(70,101)(193,048)(220,914)
Provision for income taxes1,731 4,121 3,288 8,869 
Net loss$(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 diluted255,047 269,144 250,618 265,626 

 
See the accompanying notes to condensed consolidated financial statements.
2

Table of Contents
PURE STORAGE, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands, unaudited)


 
Third Quarter of Fiscal
First Three Quarters of Fiscal
 2020202120202021
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 securities1,707 (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.
3

Table of Contents
PURE STORAGE, INC.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, unaudited)

Third Quarter of Fiscal 2020
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance at the end of the second quarter of fiscal 2020255,752 $26 $1,982,407 $3,409 $(1,248,303)$737,539 
Issuance of common stock upon exercise of stock options934  6,715 — — 6,715 
Stock-based compensation expense— — 52,336 — — 52,336 
Vesting of restricted stock units2,557   — — — 
Net issuance of restricted stock(93)— — — — — 
Tax withholding on vesting of restricted stock— — (1,614)— — (1,614)
Common stock issued under employee stock purchase plan770 — 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 StockAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance at the end of the second quarter of fiscal 2021267,776 $27 $2,172,391 $12,185 $(1,438,497)$746,106 
Issuance of common stock upon exercise of stock options678  4,019 4,019 
Stock-based compensation expense— — 59,734 — — 59,734 
Vesting of restricted stock units2,990   — — — 
Tax withholding on vesting of restricted stock(86)— (1,239)— — (1,239)
Forfeiture of restricted stock(87)— — — — — 
Common stock issued under employee stock purchase plan2,129 — 16,418 — — 16,418 
Repurchases of common stock(1,360) (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.



4

Table of Contents
PURE STORAGE, INC.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, unaudited)
First Three Quarters of Fiscal 2020
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance at the end of fiscal 2019243,524 $24 $1,820,043 $(338)$(1,081,949)$737,780 
Issuance of common stock upon exercise of stock options4,797 1 26,005 — — 26,006 
Stock-based compensation expense— — 170,542 — — 170,542 
Vesting of restricted stock units6,884 1 (1)— —  
Net issuance of restricted stock972 — — — — — 
Tax withholding on vesting of restricted stock— — (8,787)— — (8,787)
Common stock issued under employee stock purchase plan3,743 — 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 StockAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance at the end of fiscal 2020264,008 $26 $2,107,579 $5,449 $(1,282,936)$830,118 
Issuance of common stock upon exercise of stock options4,991 1 25,644 — — 25,645 
Stock-based compensation expense— — 179,884 — — 179,884 
Vesting of restricted stock units8,445 1 (1)— — — 
Tax withholding on vesting of restricted stock(305)— (4,080)— — (4,080)
Cancellation and forfeiture of restricted stock(317)—  — —  
Common stock issued under employee stock purchase plan3,714 — 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.
5

Table of Contents
PURE STORAGE, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)


 
First Three Quarters of Fiscal
 20202021
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 amortization66,785 49,811 
Amortization of debt discount and debt issuance costs20,186 21,525 
Stock-based compensation expense174,790 179,755 
Impairment of long-lived assets 7,505 
Other(483)4,111 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net17,079 83,220 
Inventory2,722 (4,724)
Deferred commissions(8,158)(12,885)
Prepaid expenses and other assets1,464 (37,606)
Operating lease right-of-use assets19,962 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 revenue106,980 57,860 
Net cash provided by operating activities119,716 118,608 
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) 
Purchases of marketable securities(640,024)(454,391)
Sales of marketable securities116,518 132,207 
Maturities of marketable securities345,657 324,780 
Other (5,000)
Net cash used in investing activities(312,649)(415,853)
CASH FLOWS FROM FINANCING ACTIVITIES
  Net proceeds from exercise of stock options25,804 25,677 
  Proceeds from issuance of common stock under employee stock purchase plan43,291 32,439 
  Proceeds from borrowings, net of issuance costs 251,892 
  Repayment of debt assumed from acquisition (11,555) 
  Tax withholding on vesting of restricted stock(8,787)(4,080)
  Repurchases of common stock (111,554)
Net cash provided by financing activities48,753 194,374 
Net decrease in cash, cash equivalents and restricted cash(144,180)(102,871)
Cash, cash equivalents and restricted cash, beginning of period463,813 377,922 
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 cash15,287 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 $53,289 
Fair value of equity awards assumed in an acquisition$ $8,802 

See the accompanying notes to condensed consolidated financial statements.
6

Table of Contents

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 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 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 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 2021 or any future period.
7

Table of Contents

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 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 standalone selling price for revenue arrangements with multiple performance obligations, useful lives of intangible assets and property and equipment, the period of benefit for deferred contract costs for commissions, stock-based compensation, provision for income taxes including related reserves, and fair value of equity assumed, assets acquired and liabilities 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 letters of credit related to our leases and for a vendor credit card program. At the end of fiscal 2020 and the third quarter of fiscal 2021, we had restricted cash of $15.3 million and $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 as a component of stockholders’ equity. We evaluate our securities with unrealized loss positions 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 the amortized cost basis. Realized gains and losses from the sale of marketable securities are determined based on the specific identification method. Realized gains and losses are reported in other income (expense), net in the condensed consolidated statements of operations.
Business Combinations
We allocate the purchase price to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of the assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill. The results of operations of an acquired business is included in our condensed consolidated financial statements from the date of acquisition. Acquisition-related expenses are expensed as incurred.
8

Table of Contents

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 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 our condensed consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.
Revenue Recognition
We generate revenue primarily from two sources: (1) product revenue which includes hardware and embedded software and (2) subscription services revenue which includes Evergreen Storage subscriptions, and our unified subscription that includes Pure as-a-Service and Cloud Block Store.
Our product revenue is derived from the sale of integrated storage hardware and operating system software. We typically recognize product revenue upon transfer of control to our customers. Products are typically shipped directly by us to customers.
Our subscription services revenue is derived from the services we perform in connection with the sale of subscription services and is recognized ratably over the contractual term, which generally ranges from one to six years. The majority of our product solutions are sold with an Evergreen 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 the allocated revenue is recognized upon shipment of the controller.
Our subscription services also include the right to receive unspecified software updates and upgrades on a when-and-if-available basis, software bug fixes, replacement parts and other services related to the underlying infrastructure, as well as access to our cloud-based management and support platform. We also sell professional services such as installation and implementation consulting services, and the related revenue is recognized as services are performed.
9

Table of Contents

PURE STORAGE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
We recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services. This is achieved through applying the following five-step approach:
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, we satisfy a performance obligation
When applying this five-step approach, we apply judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including the customer's historical payment experience and/or published credit and financial information pertaining to the customer. To the extent a customer contract includes multiple promised goods or services, we determine whether promised goods or services should be accounted for as a separate performance obligation. The transaction price is determined based on the consideration which we will be entitled to in exchange for transferring goods or services to the customer. 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 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for 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 standard will be effective for us beginning February 7, 2022 and can be applied on either a fully retrospective or modified retrospective basis. Early adoption is permitted for fiscal years beginning after December 15, 2020. We are currently evaluating the impact of this standard on our condensed consolidated financial statements.
Note 3. Financial Instruments 
Fair Value Measurements
We define fair value as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Three levels of inputs may be used to measure fair value:
Level 1 - Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;
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.
10

Table of Contents

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. The following tables summarize our cash equivalents, marketable securities and restricted cash by significant investment categories and their assigned levels within the valuation hierarchy at the end of fiscal 2020 and 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 EquivalentsMarketable SecuritiesRestricted Cash
Level 1      
Money market accounts$— $— $— $26,355 $11,068 $ $15,287 
Level 2      
U.S. government treasury notes323,751 2,146  325,897  325,897  
U.S. government agencies53,930 317 (3)54,244  54,244  
Corporate debt securities452,318 3,954 (1)456,271 3,001 453,270  
Foreign government bonds14,994 147  15,141  15,141  
Asset-backed securities87,267 699  87,966  87,966  
Total$932,260 $7,263 $(4)$965,874 $14,069 $936,518 $15,287 

 
At the End of the Third Quarter of Fiscal 2021
 Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair
Value
Cash EquivalentsMarketable
Securities
Restricted Cash
Level 1
Money market accounts$— $— $— $43,232 $31,883 $ $11,349 
Level 2       
U.S. government treasury notes346,860 3,819 (5)350,674  350,674  
U.S. government agencies56,723 543 (1)57,265  57,265  
Corporate debt securities414,234 4,986 (37)419,183  419,183  
Foreign government bonds20,497 348 (1)20,844  20,844  
Asset-backed securities88,534 1,219 (1)89,752  89,752  
Total$926,848 $10,915 $(45)$980,950 $31,883 $937,718 $11,349 
 
11

Table of Contents

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):
 
At the End of the Third Quarter of Fiscal 2021
 Amortized CostFair Value
Due within one year$360,525 $362,473 
Due in one to five years566,323 575,245 
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 investments at the end of 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 position at the end of fiscal 2020 and the third quarter of fiscal 2021, aggregated by investment category (in thousands):

At the End of Fiscal 2020
Less than 12 monthsGreater than 12 monthsTotal
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
U.S. government treasury notes$ $ $1,000 $ $1,000 $ 
U.S. government agencies4,998 (3)  4,998 (3)
Corporate debt securities9,691 (1)  9,691 (1)
Total$14,689 $(4)$1,000 $ $15,689 $(4)

At the End of the Third Quarter of Fiscal 2021
 Less than 12 monthsGreater than 12 monthsTotal
 Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
U.S. government treasury notes$58,412 $(5)$ $ $58,412 $(5)
U.S. government agencies2,999 (1)  2,999 (1)
Corporate debt securities29,930 (37)  29,930 (37)
Foreign government bonds3,234 (1)  3,234 (1)
Asset-backed securities6,786 (1)  6,786 (1)
Total$101,361 $(45)$ $ $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.
12

Table of Contents

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 assumed8,802 
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):
AmountEstimated Useful Life
Goodwill$323,413 
Identified intangible assets:
Developed technology21,612 5 years
Customer relationships6,116 7 years
Trade name3,762 3 years
Cash4,407 
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 not 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.
13