UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q

(Mark One)

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

For the quarterly period ended ~~May 3,~~November 1, 2020

☐ 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:

Title of 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 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 filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller 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

~~Securities registered pursuant to Section 12(b) of the Act:~~

~~Title of 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~~

As of ~~June 5,~~December 4, 2020, the registrant had ~~265,022,124~~272,810,989 shares of its Class A common stock outstanding.

Table of Contents

PURE STORAGE, INC.

~~Table of Contents~~

FORM 10-Q for the Quarter Ended ~~May 3,~~November 1, 2020

Table of Contents


		Page
Note About Forward-Looking Statements			ii
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Loss	3
	Condensed Consolidated Statements of Stockholders' Equity	4
	Condensed Consolidated Statements of Cash Flows	56
	Notes to Condensed Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2629
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3439
Item 4.	Controls and Procedures	3540
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	3641
Item 1A.	Risk Factors	3641
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5562
Item 3.	Defaults Upon Senior Securities	5662
Item 4.	Mine Safety Disclosures	5662
Item 5.	Other Information	5662
Item 6.	Exhibits	5763
Signatures

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.

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							At the End of
		Fiscal 2020		First Quarter of Fiscal 2021			Fiscal 2020		Third Quarter of Fiscal 2021

ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	362,635	$	347,580	Cash and cash equivalents	$	362,635	$	263,702
Marketable securities	Marketable securities	936,518		926,560		Marketable securities	936,518		937,718
Accounts receivable, net of allowance of $542 and $619 at the end of fiscal 2020 and the first quarter of fiscal 2021		458,643		349,126
Accounts receivable, net of allowance of $542 and $558						Accounts receivable, net of allowance of $542 and $558	458,643		378,193
Inventory	Inventory	38,518		39,266		Inventory	38,518		43,152
Deferred commissions, current	Deferred commissions, current	37,148		39,181		Deferred commissions, current	37,148		42,728
Prepaid expenses and other current assets	Prepaid expenses and other current assets	56,930		56,154		Prepaid expenses and other current assets	56,930		77,813
Total current assets	Total current assets	1,890,392		1,757,867		Total current assets	1,890,392		1,743,306
Property and equipment, net	Property and equipment, net	122,740		136,208		Property and equipment, net	122,740		158,200
Operating lease right-of-use assets	Operating lease right-of-use assets	112,854		116,960		Operating lease right-of-use assets	112,854		137,856
Deferred commissions, non-current	Deferred commissions, non-current	102,056		103,182		Deferred commissions, non-current	102,056		109,361
Intangible assets, net	Intangible assets, net	58,257		55,556		Intangible assets, net	58,257		81,075
Goodwill	Goodwill	37,584		37,584		Goodwill	37,584		360,997

Restricted cash	Restricted cash	15,287		15,287		Restricted cash	15,287		11,349

Other assets, non-current	Other assets, non-current	25,034		32,217		Other assets, non-current	25,034		50,851
Total assets	Total assets	$	2,364,204	$	2,254,861	Total assets	$	2,364,204	$	2,652,995
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	77,651	$	64,817	Accounts payable	$	77,651	$	89,369
Accrued compensation and benefits	Accrued compensation and benefits	106,592		64,033		Accrued compensation and benefits	106,592		83,163
Accrued expenses and other liabilities	Accrued expenses and other liabilities	47,223		38,881		Accrued expenses and other liabilities	47,223		47,939
Operating lease liabilities, current	Operating lease liabilities, current	27,264		29,940		Operating lease liabilities, current	27,264		30,902
Deferred revenue, current	Deferred revenue, current	356,011		365,716		Deferred revenue, current	356,011		408,086
Total current liabilities	Total current liabilities	614,741		563,387		Total current liabilities	614,741		659,459
Convertible senior notes, net		477,007		483,943
Long-term debt						Long-term debt	477,007		748,422
Operating lease liabilities, non-current	Operating lease liabilities, non-current	92,977		95,886		Operating lease liabilities, non-current	92,977		124,382
Deferred revenue, non-current	Deferred revenue, non-current	341,277		340,344		Deferred revenue, non-current	341,277		354,678

Other liabilities, non-current	Other liabilities, non-current	8,084		14,443		Other liabilities, non-current	8,084		30,973
Total liabilities	Total liabilities	1,534,086		1,498,003		Total liabilities	1,534,086		1,917,914
Commitments and contingencies (Note 7)
Commitments and contingencies (Note 8)						Commitments and contingencies (Note 8)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, par value of $0.0001 per share— 20,000 shares authorized at the end of fiscal 2020 and the first quarter of fiscal 2021; 0 shares issued and outstanding at the end of fiscal 2020 and the first quarter of fiscal 2021		—		—
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 at the end of fiscal 2020 and the first quarter of fiscal 2021; 264,008 and 263,970 Class A shares issued and outstanding at the end of fiscal 2020 and the first quarter of fiscal 2021;		26		26
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	Additional paid-in capital	2,107,579		2,120,189		Additional paid-in capital	2,107,579		2,238,714
Accumulated other comprehensive income	Accumulated other comprehensive income	5,449		10,173		Accumulated other comprehensive income	5,449		9,059
Accumulated deficit	Accumulated deficit	(1,282,936)		(1,373,530)		Accumulated deficit	(1,282,936)		(1,512,719)
Total stockholders’ equity	Total stockholders’ equity	830,118		756,858		Total stockholders’ equity	830,118		735,081
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,364,204	$	2,254,861	Total liabilities and stockholders’ equity	$	2,364,204	$	2,652,995

See the accompanying notes to condensed consolidated financial statements.

Table of Contents

PURE STORAGE, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data, unaudited)


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

Revenue:	Revenue:					Revenue:
Product	Product	$	238,741	$	246,939	Product	$	323,268	$	274,470	$	862,137	$	793,718
Subscription services	Subscription services	87,959		120,180		Subscription services	105,141		136,149		289,299		387,743
Total revenue	Total revenue	326,700		367,119		Total revenue	428,409		410,619		1,151,436		1,181,461
Cost of revenue:	Cost of revenue:					Cost of revenue:
Product	Product	76,592		69,285		Product	89,998		86,661		259,460		240,677
Subscription services	Subscription services	33,721		41,009		Subscription services	37,773		47,442		106,632		132,717
Total cost of revenue	Total cost of revenue	110,313		110,294		Total cost of revenue	127,771		134,103		366,092		373,394
Gross profit	Gross profit	216,387		256,825		Gross profit	300,638		276,516		785,344		808,067
Operating expenses:	Operating expenses:					Operating expenses:
Research and development	Research and development	105,075		112,446		Research and development	106,663		122,981		318,758		350,079
Sales and marketing	Sales and marketing	166,626		173,433		Sales and marketing	184,819		172,282		537,633		517,149
General and administrative	General and administrative	42,110		41,125		General and administrative	37,416		46,467		119,542		132,063
Restructuring and other	Restructuring and other	—		14,702		Restructuring and other	0		0		0		22,990
Total operating expenses	Total operating expenses	313,811		341,706		Total operating expenses	328,898		341,730		975,933		1,022,281
Loss from operations	Loss from operations	(97,424)		(84,881)		Loss from operations	(28,260)		(65,214)		(190,589)		(214,214)
Other income (expense), net	Other income (expense), net	(1,816)		(3,416)		Other income (expense), net	9		(4,887)		(2,459)		(6,700)
Loss before provision for income taxes	Loss before provision for income taxes	(99,240)		(88,297)		Loss before provision for income taxes	(28,251)		(70,101)		(193,048)		(220,914)
Provision for income taxes	Provision for income taxes	1,096		2,297		Provision for income taxes	1,731		4,121		3,288		8,869
Net loss	Net loss	$	(100,336)	$	(90,594)	Net loss	$	(29,982)	$	(74,222)	$	(196,336)	$	(229,783)
Net loss per share attributable to common stockholders, basic and diluted	Net loss per share attributable to common stockholders, basic and diluted	$	(0.41)	$	(0.34)	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	Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	245,334		262,935		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

See the accompanying notes to condensed consolidated financial statements.

Table of Contents

PURE STORAGE, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands, unaudited)


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

Net loss	Net loss	$	(100,336)	$	(90,594)	Net loss	$	(29,982)	$	(74,222)	$	(196,336)	$	(229,783)
Other comprehensive income net of tax:
Change in unrealized net gain on available-for-sale securities		1,627		4,724

Other comprehensive income (loss) net of tax:						Other comprehensive income (loss) net of tax:
Unrealized net gains (losses) on available-for-sale securities						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						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						Change in unrealized net gains (losses) on available-for-sale securities	1,707		(3,126)		5,454		3,610
Comprehensive loss	Comprehensive loss	$	(98,709)	$	(85,870)	Comprehensive loss	$	(28,275)	$	(77,348)	$	(190,882)	$	(226,173)

See the accompanying notes to condensed consolidated financial statements.

Table of Contents

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 (Loss)		Accumulated Deficit				Total Stockholders' Equity	Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Income				Accumulated Deficit			Total Stockholders' Equity
		Shares	Amount															Shares										Total Stockholders' Equity
Balance at the end of fiscal 2019		243,524	$	24	$	1,820,043	$	(338)	$	(1,081,949)	$	737,780
Balance at the end of the second quarter of fiscal 2020													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	Issuance of common stock upon exercise of stock options	3,208	1		16,788		—		—		16,789		Issuance of common stock upon exercise of stock options	934		0		6,715		—		—				6,715
Stock-based compensation expense	Stock-based compensation expense	—	—		61,746		—		—		61,746		Stock-based compensation expense	—		—		52,336		—		—				52,336
Vesting of restricted stock units	Vesting of restricted stock units	2,050	—		—		—		—		—		Vesting of restricted stock units	2,557		0		0		—		—��				—
Net issuance of restricted stock	Net issuance of restricted stock	1,098	—		—		—		—		—		Net issuance of restricted stock	(93)		—		—		—		—				—
Tax withholding on vesting of restricted stock	Tax withholding on vesting of restricted stock	—	—		(5,672)		—		—		(5,672)		Tax withholding on vesting of restricted stock	—		—		(1,614)		—		—				(1,614)
Common stock issued under employee stock purchase plan	Common stock issued under employee stock purchase plan	2,973	—		32,042		—		—		32,042		Common stock issued under employee stock purchase plan	770		—		11,249		—		—				11,249
Other comprehensive income	Other comprehensive income	—	—		—		1,627		—		1,627		Other comprehensive income	—		—		—		1,707		—				1,707
Net loss	Net loss	—	—		—		—		(100,336)		(100,336)		Net loss	—		—		—		—		(29,982)				(29,982)
Balance at the end of the first quarter of fiscal 2020		252,853	$	25	$	1,924,947	$	1,289	$	(1,182,285)	$	743,976
Balance at the end of the third quarter of fiscal 2020													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	Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Income				Accumulated Deficit			Total Stockholders' Equity
		Shares	Amount															Shares										Total Stockholders' Equity
Balance at the end of fiscal 2020		264,008	$	26	$	2,107,579	$	5,449	$	(1,282,936)	$	830,118
Balance at the end of the second quarter of fiscal 2021													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	Issuance of common stock upon exercise of stock options	2,175	—		9,388		—		—		9,388		Issuance of common stock upon exercise of stock options	678		0		4,019								4,019
Stock-based compensation expense	Stock-based compensation expense	—	—		58,694		—		—		58,694		Stock-based compensation expense	—		—		59,734		—		—				59,734
Vesting of restricted stock units	Vesting of restricted stock units	2,525	—		—		—		—		—		Vesting of restricted stock units	2,990		0		0		—		—				—
Cancellation of restricted stock		(230)	—		—		—		—		—
Tax withholding on vesting of restricted stock	Tax withholding on vesting of restricted stock	(134)	—		(1,374)		—		—		(1,374)		Tax withholding on vesting of restricted stock	(86)		—		(1,239)		—		—				(1,239)
Forfeiture of restricted stock													Forfeiture of restricted stock	(87)		—		—		—		—				—
Common stock issued under employee stock purchase plan	Common stock issued under employee stock purchase plan	1,585	—		16,021		—		—		16,021		Common stock issued under employee stock purchase plan	2,129		—		16,418		—		—				16,418
Repurchases of common stock	Repurchases of common stock	(5,959)	—		(70,119)		—		—		(70,119)		Repurchases of common stock	(1,360)		0		(21,411)		—		—				(21,411)
Other comprehensive income		—	—		—		4,724		—		4,724
Equity awards assumed in an acquisition													Equity awards assumed in an acquisition	—		—		8,802		—		—				8,802
Other comprehensive loss													Other comprehensive loss	—		—		—		(3,126)		—				(3,126)
Net loss	Net loss	—	—		—		—		(90,594)		(90,594)		Net loss	—		—		—		—		(74,222)				(74,222)
Balance at the end of the first quarter of fiscal 2021		263,970	$	26	$	2,120,189	$	10,173	$	(1,373,530)	$	756,858
Balance at the end of the third quarter of fiscal 2021													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.

Table of Contents

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.

Table of Contents

PURE STORAGE, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)


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

CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	Net loss	$	(100,336)	$	(90,594)	Net loss	$	(196,336)	$	(229,783)
Adjustments to reconcile net loss to net cash provided by operating activities:	Adjustments to reconcile net loss to net cash provided by operating activities:					Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	21,060		15,133		Depreciation and amortization	66,785		49,811
Amortization of debt discount and debt issuance costs	Amortization of debt discount and debt issuance costs	6,490		6,936		Amortization of debt discount and debt issuance costs	20,186		21,525
Stock-based compensation expense	Stock-based compensation expense	62,157		58,694		Stock-based compensation expense	174,790		179,755
Impairment of long-lived assets						Impairment of long-lived assets	0		7,505
Other	Other	(811)		1,705		Other	(483)		4,111
Changes in operating assets and liabilities, net of effects of acquisition:
Changes in operating assets and liabilities, net of effects of acquisitions:						Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net	Accounts receivable, net	67,299		109,441		Accounts receivable, net	17,079		83,220
Inventory	Inventory	(2,023)		(1,370)		Inventory	2,722		(4,724)
Deferred commissions	Deferred commissions	1,716		(3,159)		Deferred commissions	(8,158)		(12,885)
Prepaid expenses and other assets	Prepaid expenses and other assets	(7,298)		(6,298)		Prepaid expenses and other assets	1,464		(37,606)
Operating lease right-of-use assets	Operating lease right-of-use assets	6,209		6,706		Operating lease right-of-use assets	19,962		21,434
Accounts payable	Accounts payable	(25,807)		(14,294)		Accounts payable	(35,244)		8,566
Accrued compensation and other liabilities	Accrued compensation and other liabilities	(43,993)		(49,643)		Accrued compensation and other liabilities	(31,011)		(9,737)
Operating lease liabilities	Operating lease liabilities	(6,034)		(6,926)		Operating lease liabilities	(19,020)		(20,444)
Deferred revenue	Deferred revenue	28,013		8,772		Deferred revenue	106,980		57,860
Net cash provided by operating activities	Net cash provided by operating activities	6,642		35,103		Net cash provided by operating activities	119,716		118,608
CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	Purchases of property and equipment	(24,296)		(23,782)		Purchases of property and equipment	(74,206)		(73,643)
Acquisition, net of cash acquired		(47,881)		—
Acquisitions, net of cash acquired						Acquisitions, net of cash acquired	(51,594)		(339,806)
Purchase of intangible assets						Purchase of intangible assets	(9,000)		0

Purchases of marketable securities	Purchases of marketable securities	(312,859)		(98,161)		Purchases of marketable securities	(640,024)		(454,391)
Sales of marketable securities	Sales of marketable securities	22,344		17,657		Sales of marketable securities	116,518		132,207
Maturities of marketable securities	Maturities of marketable securities	164,139		95,375		Maturities of marketable securities	345,657		324,780

Other						Other	0		(5,000)
Net cash used in investing activities	Net cash used in investing activities	(198,553)		(8,911)		Net cash used in investing activities	(312,649)		(415,853)
CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from exercise of stock options	Net proceeds from exercise of stock options	16,761		9,275		Net proceeds from exercise of stock options	25,804		25,677
Proceeds from issuance of common stock under employee stock purchase plan	Proceeds from issuance of common stock under employee stock purchase plan	32,042		16,021		Proceeds from issuance of common stock under employee stock purchase plan	43,291		32,439
Proceeds from borrowing		—		4,950
Proceeds from borrowings, net of issuance costs						Proceeds from borrowings, net of issuance costs	0		251,892

Repayment of debt assumed from acquisition	Repayment of debt assumed from acquisition	(11,555)		—		Repayment of debt assumed from acquisition	(11,555)		0
Tax withholding on vesting of restricted stock	Tax withholding on vesting of restricted stock	(5,672)		(1,374)		Tax withholding on vesting of restricted stock	(8,787)		(4,080)
Repurchases of common stock	Repurchases of common stock	—		(70,119)		Repurchases of common stock	0		(111,554)
Net cash provided by (used in) financing activities		31,576		(41,247)
Net cash provided by financing activities						Net cash provided by financing activities	48,753		194,374
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	(160,335)		(15,055)		Net decrease in cash, cash equivalents and restricted cash	(144,180)		(102,871)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	463,813		377,922		Cash, cash equivalents and restricted cash, beginning of period	463,813		377,922
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	303,478	$	362,867	Cash, cash equivalents and restricted cash, end of period	$	319,633	$	275,051

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD					CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD
Cash and cash equivalents	Cash and cash equivalents	$	287,192	$	347,580	Cash and cash equivalents	$	304,346	$	263,702
Restricted cash	Restricted cash	16,286		15,287		Restricted cash	15,287		11,349
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	303,478	$	362,867	Cash, cash equivalents and restricted cash, end of period	$	319,633	$	275,051

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	Cash paid for interest	$	359	$	359	Cash paid for interest	$	718	$	1,062
Cash paid for income taxes	Cash paid for income taxes	1,640		2,376		Cash paid for income taxes	$	3,398	$	8,911
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION

Cash paid for amounts included in the measurement of lease liabilities						Cash paid for amounts included in the measurement of lease liabilities	$	24,403	$	27,336
Property and equipment purchased but not yet paid	Property and equipment purchased but not yet paid	$	11,595	$	8,274	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						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						Fair value of equity awards assumed in an acquisition	$	0	$	8,802

See the accompanying notes to condensed consolidated financial statements.

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 iswill be January 31, 2021. The ~~first~~third quarter of fiscal 2020 and 2021 ended on ~~April 30,~~October 31, 2019 and ~~May 3,~~November 1, 2020. Unless otherwise stated, all dates refer to the ~~Company’s~~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.

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.~~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 ~~valuation~~fair value of ~~intangible~~equity assumed, assets acquired and ~~goodwill.~~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.

We considered the impact of the COVID-19 pandemic on the assumptions and estimates used and determined that there were no material adverse impacts on the condensed consolidated financial statements for the first quarter of fiscal 2021.

In accordance with our ~~on-going~~ 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 ~~corresponding decrease in loss from operations and net loss of $7.9~~$19.0 million in the third quarter and first ~~quarter~~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 ~~first~~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 ~~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.

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.

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 ~~not allocate the contract consideration for operating lease contracts with lease and non-lease components, and~~ 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 2 sources: (1) product revenue which includes hardware and embedded software and (2) subscription services revenue which includes Evergreen Storage~~subscriptions,~~ subscriptions, and our unified subscription that includes Pure as-a-Service~~offerings~~, ~~and~~ and Cloud Block ~~Store.~~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 ~~services agreement~~ provides our customers ~~who continually maintain active subscription services agreements for three years~~with a new controller ~~refresh with each additional~~ ~~three~~ ~~year renewal.~~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.

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 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 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.

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.

~~Table of Contents~~

~~PURE STORAGE, INC.~~

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

In addition to our cash equivalents, marketable securities and restricted cash, we 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 first quarter of fiscal 2021 to be a Level 2 measurement due to its limited trading activity. Refer to Note 6 for the carrying amount and estimated fair value of our Notes at the end of the first quarter of fiscal 2021.

~~Cash Equivalents, Marketable Securities and Restricted Cash~~

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 ~~first~~third quarter of fiscal 2021 (in thousands):


		At the End of Fiscal 2020																											At the End of Fiscal 2020
		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															Level 1
Money market accounts	Money market accounts	$	—	$	—	$	—	$	26,355	$	11,068	$	—	$	15,287	Money market accounts	$	—	$	—	$	—	$	26,355	$	11,068	$	0	$	15,287
Level 2	Level 2															Level 2

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


		At the End of the First Quarter of Fiscal 2021																											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															Level 1
Money market accounts	Money market accounts	$	—	$	—	$	—	$	50,272	$	34,985	$	—	$	15,287	Money market accounts	$	—	$	—	$	—	$	43,232	$	31,883	$	0	$	11,349
Level 2	Level 2															Level 2
U.S. government treasury notes	U.S. government treasury notes	340,119		5,952		(1)		346,070		—		346,070		—		U.S. government treasury notes	346,860		3,819		(5)		350,674		0		350,674		0
U.S. government agencies	U.S. government agencies	41,675		618		(11)		42,282		—		42,282		—		U.S. government agencies	56,723		543		(1)		57,265		0		57,265		0
Corporate debt securities	Corporate debt securities	427,757		4,706		(412)		432,051		—		432,051		—		Corporate debt securities	414,234		4,986		(37)		419,183		0		419,183		0
Foreign government bonds	Foreign government bonds	21,776		413		—		22,189		—		22,189		—		Foreign government bonds	20,497		348		(1)		20,844		0		20,844		0
Asset-backed securities	Asset-backed securities	83,250		803		(85)		83,968		—		83,968		—		Asset-backed securities	88,534		1,219		(1)		89,752		0		89,752		0
Total	Total	$	914,577	$	12,492	$	(509)	$	976,832	$	34,985	$	926,560	$	15,287	Total	$	926,848	$	10,915	$	(45)	$	980,950	$	31,883	$	937,718	$	11,349

1011

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 First Quarter of Fiscal 2021							At the End of the Third Quarter of Fiscal 2021
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
Due within one year	Due within one year	$	396,243	$	398,933	Due within one year	$	360,525	$	362,473
Due in one to five years	Due in one to five years	516,314		525,606		Due in one to five years	566,323		575,245
Due in five to ten years		2,020		2,021

Total	Total	$	914,577	$	926,560	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 ~~first~~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 ~~first~~third quarter of fiscal 2021, aggregated by investment category (in thousands):


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

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


		At the End of the First Quarter of Fiscal 2021																							At the End of the Third Quarter of Fiscal 2021
		Less than 12 months						Greater than 12 months								Total					Less than 12 months				Greater than 12 months		Total
		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. government treasury notes	U.S. government treasury notes	$	14,975	$	(1)	$	—	$	—	$	14,975	$	(1)	U.S. government treasury notes	$	58,412	$	(5)	$	0	$	0	$	58,412	$	(5)
U.S. government agencies	U.S. government agencies	6,984		(11)		—		—		6,984		(11)		U.S. government agencies	2,999		(1)		0		0		2,999		(1)
Corporate debt securities	Corporate debt securities	57,571		(412)		—		—		57,571		(412)		Corporate debt securities	29,930		(37)		0		0		29,930		(37)

Foreign government bonds														Foreign government bonds	3,234		(1)		0		0		3,234		(1)
Asset-backed securities	Asset-backed securities	14,544		(85)		—		—		14,544		(85)		Asset-backed securities	6,786		(1)		0		0		6,786		(1)
Total	Total	$	94,074	$	(509)	$	—	$	—	$	94,074	$	(509)	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.

1112

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 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.

Table of Contents

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):


		At the End of							At the End of
		Fiscal 2020		First Quarter of Fiscal 2021			Fiscal 2020		Third Quarter of Fiscal 2021
Raw materials	Raw materials	$	2,974	$	5,687	Raw materials	$	2,974	$	4,400
Finished goods	Finished goods	35,544		33,579		Finished goods	35,544		38,752
Inventory	Inventory	$	38,518	$	39,266	Inventory	$	38,518	$	43,152

Property and Equipment, Net

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


		At the End of							At the End of
		Fiscal 2020		First Quarter of Fiscal 2021			Fiscal 2020		Third Quarter of Fiscal 2021
Test equipment	Test equipment	$	205,555	$	216,184	Test equipment	$	205,555	$	231,406
Computer equipment and software	Computer equipment and software	141,387		150,012		Computer equipment and software	141,387		173,253
Furniture and fixtures	Furniture and fixtures	8,324		8,800		Furniture and fixtures	8,324		8,842
Leasehold improvements	Leasehold improvements	40,356		43,032		Leasehold improvements	40,356		44,976
Total property and equipment	Total property and equipment	395,622		418,028		Total property and equipment	395,622		458,477
Less: accumulated depreciation and amortization	Less: accumulated depreciation and amortization	(272,882)		(281,820)		Less: accumulated depreciation and amortization	(272,882)		(300,277)
Property and equipment, net	Property and equipment, net	$	122,740	$	136,208	Property and equipment, net	$	122,740	$	158,200

Depreciation and amortization expense related to property and equipment was ~~$19.8~~$20.6 million and ~~$12.4~~$14.9 million for the ~~first~~third quarter of fiscal 2020 and ~~2021.~~

~~Intangible Assets, Net~~

~~Intangible assets, net consist~~2021, and $60.3 million and $41.1 million for the first three quarters of fiscal 2020 and 2021. The amount of internal-use software development costs capitalized during the ~~following (in thousands):~~

At the End of
Fiscal 2020 First Quarter of Fiscal 2021
Gross Carrying Value Accumulated Amortization Net Carrying Amount Gross Carrying Value Accumulated Amortization Net Carrying Amount
Technology patents $ 19,125 $ (8,933) $ 10,192 $ 19,125 $ (9,630) $ 9,495
Developed technology 56,100 (8,035) 48,065 56,100 (10,039) 46,061
Intangible assets, net $ 75,225 $ (16,968) $ 58,257 $ 75,225 $ (19,669) $ 55,556

third quarter and first three quarters was not material.

1214

Table of Contents

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
	Gross Carrying Value		Accumulated Amortization		Net Carrying Amount		Gross Carrying Value		Accumulated Amortization		Net Carrying Amount
Technology patents	$	19,125	$	(8,933)	$	10,192	$	19,125	$	(11,025)	$	8,100
Developed technology	56,100		(8,035)		48,065		77,712		(14,438)		63,274
Customer relationships	0		0		0		6,116		(73)		6,043
Trade name	0		0		0		3,762		(104)		3,658
Intangible assets, net	$	75,225	$	(16,968)	$	58,257	$	106,715	$	(25,640)	$	81,075

Intangible assets amortization expense was ~~$1.3~~$2.6 million and ~~$2.7~~$3.3 million for the third quarter of fiscal 2020 and 2021, and $6.5 million and $8.7 million for the first ~~quarter~~three quarters of fiscal 2020 and 2021. At the end of the ~~first~~third quarter of fiscal 2021, the weighted-average remaining amortization period was ~~3.4~~3.0 years for technology patents, ~~and 5.7~~5.1 years for developed ~~technology. Amortization~~technology, 6.9 years for customer relationships, and 2.9 years for trade name. We recorded amortization of ~~the~~(i) technology patents ~~is included~~ in general and administrative expenses due to their defensive nature, ~~and amortization of~~(ii) developed technology ~~is included~~ in cost of product revenue, and (iii) customer relationships and trade name in sales and marketing expenses in the condensed consolidated statements of operations.

At the end of the ~~first~~third quarter of fiscal 2021, future expected amortization expense for intangible assets is as follows (in thousands):


Fiscal Years Ending	Fiscal Years Ending	Estimated Future Amortization Expense		Fiscal Years Ending	Estimated Future Amortization Expense
Remainder of 2021	Remainder of 2021	$	8,103	Remainder of 2021	$	4,313
2022	2022	9,846		2022	16,296
2023	2023	9,300		2023	15,750
2024	2024	9,300		2024	15,332
2025	2025	9,300		2025	14,496
Thereafter	Thereafter	9,707		Thereafter	14,888
Total	Total	$	55,556	Total	$	81,075

Goodwill

AsThe change in the carrying amount of ~~the end of fiscal 2020 and the first quarter of fiscal 2021,~~ goodwill ~~was $37.6 million. There were 0 impairments to goodwill during the first quarter of fiscal 2020 and 2021.~~

~~Accrued Expenses and Other Liabilities~~

~~Accrued expenses and other liabilities consist of the following~~is as follows (in thousands):

At the End of
Fiscal 2020 First Quarter of Fiscal 2021
Taxes payable $ 9,012 $ 7,459
Accrued marketing 7,679 7,767
Accrued travel and entertainment expenses 3,829 1,126
Acquisition consideration⁽¹⁾
6,149 470
Other accrued liabilities 20,554 22,059
Total accrued expenses and other liabilities $ 47,223 $ 38,881

⁽¹⁾~~Payment in the amount of $7.3 million was made in April 2020.~~


	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

1315

Table of Contents

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 5.6. 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):


		First Quarter of Fiscal							Third Quarter of Fiscal				First Three Quarters of Fiscal
		2020		2021			2020		2021		2020		2021
Beginning balance	Beginning balance	$	114,973	$	139,204	Beginning balance	$	118,568	$	144,687	$	114,973	$	139,204
Additions	Additions	18,236		29,762		Additions	34,071		36,234		82,381		96,530
Recognition of deferred commissions	Recognition of deferred commissions	(19,952)		(26,603)		Recognition of deferred commissions	(29,508)		(28,832)		(74,223)		(83,645)
Ending balance	Ending balance	$	113,257	$	142,363	Ending balance	$	123,131	$	152,089	$	123,131	$	152,089

Of the ~~$142.4~~$152.1 million total deferred commissions balance at the end of the ~~first~~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 ~~quarter~~three quarters of fiscal 2020 and 2021.

Table of Contents

PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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):


		First Quarter of Fiscal							Third Quarter of Fiscal				First Three Quarters of Fiscal
		2020		2021			2020		2021		2020		2021
Beginning balance	Beginning balance	$	535,920	$	697,288	Beginning balance	$	607,263	$	724,751	$	535,920	$	697,288
Additions	Additions	117,894		131,734		Additions	142,164		180,285		400,605		467,454
Recognition of deferred revenue	Recognition of deferred revenue	(89,584)		(122,962)		Recognition of deferred revenue	(106,229)		(142,272)		(293,327)		(401,978)
Ending balance	Ending balance	$	564,230	$	706,060	Ending balance	$	643,198	$	762,764	$	643,198	$	762,764

Revenue recognized during the ~~first~~third quarter of fiscal 2020 and 2021 from deferred revenue at the beginning of each respective period was ~~$79.3~~$101.4 million and ~~$108.7~~$121.9 million.

~~Table~~ Revenue recognized during the first three quarters of ~~Contents~~

~~PURE STORAGE, INC.~~

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

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 ~~$912.0~~$1,010.4 million at the end of the ~~first~~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. ~~For~~The value of orders that are contracted but have not been fulfilled and that can be canceled by customers, ~~the order values~~ are excluded from remaining performance obligations. Of the ~~$912.0~~$1,010.4 million contracted but not recognized revenue at the end of the ~~first~~third quarter of fiscal 2021, we expect to recognize approximately ~~42%~~43% over the next 12 months, and the remainder thereafter.

Table of Contents

PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 6. 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.

~~Table of Contents~~

~~PURE STORAGE, INC.~~

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

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.

Table of Contents

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.

In accounting for the issuance of the Notes, we separated the Notes into liability and equity components. The carrying amount of the liability component was determined by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was calculated by deducting the fair value of the liability component from the principal amount of the Notes as a whole. The difference between the principal amount of the Notes and the liability component (the debt discount) is amortized to interest expense in the condensed consolidated statements of operations using the effective interest method over the term of the Notes. The equity component of the Notes is included in additional paid-in capital in the condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the transaction costs related to the issuance of the Notes, we allocated the total amount incurred to the liability and equity components using the same proportions as the initial carrying value of the Notes. Transaction costs attributable to the liability component were netted with the principal amount of the Notes in the condensed consolidated balance sheets and are being amortized to interest expense in the condensed consolidated statements of operations using the effective interest method over the term of the Notes. Transaction costs attributable to the equity component were netted with the equity component of the Notes in additional paid-in capital in the condensed consolidated balance sheets. 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							At the End of
		Fiscal 2020		First Quarter of Fiscal 2021			Fiscal 2020		Third Quarter of Fiscal 2021
Liability:	Liability:					Liability:
Principal	Principal	$	575,000	$	575,000	Principal	$	575,000	$	575,000
Less: debt discount, net of amortization	Less: debt discount, net of amortization	(91,378)		(84,910)		Less: debt discount, net of amortization	(91,378)		(71,408)
Less: debt issuance costs, net of amortization	Less: debt issuance costs, net of amortization	(6,615)		(6,147)		Less: debt issuance costs, net of amortization	(6,615)		(5,170)
Net carrying amount of the Notes	Net carrying amount of the Notes	$	477,007	$	483,943	Net carrying amount of the Notes	$	477,007	$	498,422

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

~~Table of Contents~~

~~PURE STORAGE, INC.~~

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

The total estimated fair value of the Notes at the end of the ~~first~~third quarter of fiscal 2021 was ~~$521.0~~$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 ~~$13.37~~$16.10 on the last day of the ~~first~~third quarter of fiscal 2021, the if-converted value of the Notes of ~~$292.6~~$352.3 million was less than its principal amount. At the end of the ~~first~~third quarter of fiscal 2021, the remaining term of the Notes is 3529 months.

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


		First Quarter of Fiscal										Third Quarter of Fiscal						First Three Quarters of Fiscal
		2020			2021				2020			2021			2020			2021
Amortization of debt discount	Amortization of debt discount	$	6,052		$	6,468		Amortization of debt discount	$	6,431		$	6,799		$	18,824		$	19,970
Amortization of debt issuance costs	Amortization of debt issuance costs	438			468			Amortization of debt issuance costs	465			491			1,362			1,445
Total amortization of debt discount and debt issuance costs	Total amortization of debt discount and debt issuance costs	6,490			6,936			Total amortization of debt discount and debt issuance costs	6,896			7,290			20,186			21,415
Contractual interest expense	Contractual interest expense	177			177			Contractual interest expense	181			181			539			539
Total interest expense related to the Notes	Total interest expense related to the Notes	$	6,667		$	7,113		Total interest expense related to the Notes	$	7,077		$	7,471		$	20,725		$	21,954

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

Table of Contents

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.

Table of Contents

PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 7.8. Commitments and Contingencies

Letters of Credit

At the end of fiscal 2020 and the ~~first~~third quarter of fiscal 2021, we had outstanding letters of credit in the aggregate amount of $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 and mature on various dates through August 2029.

~~Table of Contents~~

~~PURE STORAGE, INC.~~

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

Legal Matters

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 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 at the end of the ~~first~~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 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 8.9. 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 ~~first~~third quarter of fiscal 2021, we ~~entered into several leases to add office space and~~ executed aan early renewal that modified an existing data center lease ~~resulting~~that resulted in ~~additional lease payments~~total incremental undiscounted cash flows of ~~$6.8~~$27.3 million. The components of lease costs during the periods presented were as follows (in thousands):


		First Quarter of Fiscal							Third Quarter of Fiscal				First Three Quarters of Fiscal
		2020		2021			2020		2021		2020		2021
Fixed operating lease cost	Fixed operating lease cost	$	8,483	$	8,749	Fixed operating lease cost	$	8,509	$	9,494	$	25,220	$	27,775
Variable lease cost ⁽¹⁾	Variable lease cost ⁽¹⁾	2,100		2,651		Variable lease cost (1)	2,122		2,455		6,464		7,397
Short-term lease cost (12 months or less)	Short-term lease cost (12 months or less)	861		1,507		Short-term lease cost (12 months or less)	1,412		1,502		3,757		4,568
Total lease cost	Total lease cost	$	11,444	$	12,907	Total lease cost	$	12,043	$	13,451	$	35,441	$	39,740

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

At the end of the first quarter of fiscal 2021, the weighted-average remaining lease term is 5.65 years, and the weighted-average discount rate is 6.42%. Future lease payments under our non-cancelable operating leases at the end of the first quarter of fiscal 2021 were as follows (in thousands):

Fiscal Years Ending Operating Leases
The remainder of 2021 $ 27,916
2022 31,710
2023 25,506
2024 19,272
2025 15,775
Thereafter 33,139
Total future lease payments 153,318
Less: imputed interest (27,492)
Present value of lease liabilities $ 125,826

1821

Table of Contents

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 ~~in the above table do not include a data center lease that has not commenced with total undiscounted cash flows of $22.4 million with a lease term of 5.2 years.~~

~~Supplemental cash flow information related to~~under our non-cancelable operating leases ~~for~~at the ~~first~~end of the third quarter of fiscal ~~2020 and~~ 2021 were as ~~follows:~~follows (in thousands):

First Quarter of Fiscal
2020 2021
Cash paid for amounts included in the measurement of lease liabilities (in thousands) $ 8,114 $ 8,688
Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 2,327 $ 10,812


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 9.10. Restructuring and Other

~~In February 2020~~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 ~~prior to~~leasehold improvements for these leases were expensed.

During the ~~effects~~first three quarters of ~~the COVID-19 pandemic,~~fiscal 2021, we effected a workforce realignment ~~plan as part of an effort~~plans to streamline our ~~operations. We estimated approximately $6.5~~operations and recognized $6.6 million of restructuring costs related to one-time involuntary termination benefit ~~costs, of which $5.8 million was recognized in the first quarter of fiscal 2021.~~costs. The restructuring ~~charge is~~charges are included in restructuring and other onexpenses in our condensed consolidated statement of operations. We expect to recognize the remaining costs associated with the plan of termination in the second quarter of fiscal 2021. The liability for unpaid amounts at the end of the first quarter was not material.

During the first ~~quarter~~three quarters of fiscal 2021, we incurred incremental costs of ~~$9.5~~$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 ~~the $9.5 million,~~these costs, $8.9 million is included in restructuring and other expenses and ~~$0.6~~$0.9 million is included in cost of revenue onin our ~~condensed~~ consolidated ~~statement~~statements of ~~operations.~~operations for the first three quarters of fiscal 2021.

Note ~~10.~~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. At the end of the ~~first~~third quarter of fiscal 2021, there were 0 shares of preferred stock issued or outstanding.

Class A and Class B Common Stock

We have 2 classes of authorized common stock, Class A common stock, which we refer to as our "common stock", and Class B common stock. At the end of the ~~first~~third quarter of fiscal 2021, we had 2,000,000,000 authorized shares of Class A common stock and 250,000,000 authorized shares of Class B common stock, with each class having a par value of $0.0001 per share. At the end of the ~~first~~third quarter of fiscal 2021, ~~263,969,943~~272,039,767 shares of Class A common stock were issued and outstanding.

1922

Table of Contents

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. The authorization allows us to repurchase shares of our common stock opportunistically and will be funded from available working capital. Repurchases may be made at management’s discretion from time to time on the open market through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing. The share repurchase program does not obligate us to acquire any of our common stock, has no end date, and may be suspended or discontinued by us at any time without prior notice. The difference between cash paid for stock repurchases and underlying par value is recorded as a reduction to additional paid-in capital, to the extent the repurchases does not cause this balance to be reduced below zero, at which point the difference will be recorded as a reduction to accumulated deficit. During the ~~first~~third quarter of fiscal 2021, we repurchased and retired ~~5,959,430~~1,360,000 shares of common stock at an average purchase price of ~~$11.75~~$15.72 per share for an aggregate repurchase price of ~~$70.0~~$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. At the end of the ~~first~~third quarter of fiscal 2021, ~~$65.0~~$23.6 million remained available for future share repurchases under our current repurchase authorization.

Note ~~11.~~12. Equity Incentive Plans

Equity Incentive Plans

We maintain 2 equity incentive plans: the 2009 Equity Incentive Plan (the 2009 Plan) and the 2015 Equity Incentive Plan (the 2015 Plan). The 2015 Plan ~~became effective in connection with our initial public offering (IPO) in October 2015 and~~ serves as the successor to 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, ~~restricted stock unit awards (RSUs),~~RSUs, performance stock awards, performance cash awards, and other forms of stock awards to our employees, directors and consultants. ~~No new~~Our equity awards ~~have been issued under our 2009 Plan after~~generally vest over a two to four year period and expire no later than ten years from the ~~effective~~ date of our 2015 Plan. Outstanding awards granted under our 2009 Plan will remain subject to the terms of our 2009 Plan and applicable award agreements, until such outstanding awards that are stock options are exercised, terminated or expired by their terms.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 ~~exercise price of stock options will generally not be less than 100% of the fair market value~~Assumed Equity Awards were converted into corresponding awards for shares of our common stock and retained substantially all of the terms and conditions under which they were granted. Approximately 3.9 million shares are reserved for issuance in connection with the Assumed Equity Awards. Refer to Note 4 for further information on the ~~date of grant, as determined by our board of directors. Our~~ equity awards ~~generally vest over a~~ ~~two~~ to ~~four~~ ~~year period and expire no later than ten years~~assumed resulting from the ~~date of grant.~~

~~Table of Contents~~

~~PURE STORAGE, INC.~~

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

Portworx acquisition.

2015 Amended and Restated Employee Stock Purchase Plan

~~Our~~Under our Amended and Restated 2015 Employee Stock Purchase Plan (2015 ESPP) ~~became effective in connection with~~, our ~~IPO and was amended and restated in fiscal 2020. Our~~ board of directors (or a committee thereof) has the authority ~~under the 2015 ESPP~~ to establish the length and terms of the offering periods and purchase periods and the purchase price of the shares of common stock which may be purchased under the plan. The current offering terms allow eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to 30% of their eligible compensation, subject to a cap of 3,000 shares on any purchase date, a dollar cap of $7,500 per purchase period, or $25,000 in any calendar year (as determined under applicable tax rules). ~~In February 2019, we amended the offering terms under the 2015 ESPP on a prospective basis, to include an additional dollar cap of $7,500 per purchase period.~~ The current terms also allow for a 24-month offering period beginning March 16th and September 16th of each year, with each offering period consisting of 4 6 ~~months~~month purchase periods, subject to a reset provision. Further, 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.

Table of Contents

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), resulting in a modification charge to be recognized over the new offering period. During the first quarter of fiscal 2021, t~~here~~there was an ESPP reset that resulted in a modification charge of $23.8 million, which is being recognized over the new offering period ending March 15, ~~202~~2.2022.

Stock-based compensation expense related to our 2015 ESPP was ~~$11.4~~$4.3 million and ~~$5.6~~$6.8 million during the third quarter of fiscal 2020 and 2021, and $20.0 million and $18.8 million during the first ~~quarter~~three quarters of fiscal 2020 and 2021. At the end of the ~~first~~third quarter of fiscal 2021, total unrecognized stock-based compensation cost related to our 2015 ESPP was ~~$49.8~~$40.9 million, which is expected to be recognized over a weighted-average period of ~~1.9~~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 at the end of fiscal 2020 26,822,243 $ 8.97 3.9 $ 237,803
Options exercised (2,174,568) 4.32
Options forfeited/canceled (108,184) 16.13
Balance at the end of the first quarter of fiscal 2021 24,539,491 $ 9.36 3.8 $ 127,583
Vested and exercisable at the end of the first quarter of fiscal 2021 22,050,411 $ 8.62 4.2 $ 126,788


	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 at the end of the ~~first~~third quarter of fiscal 2021 is calculated based on the difference between the exercise price and the closing price of ~~$13.37~~$16.10 of our common stock on the last day of the ~~first~~third quarter of fiscal 2021.

~~During~~The weighted-average grant date fair value of options assumed was $14.16 per share during the third quarter and first three quarters of fiscal 2021.

Stock-based compensation expense recognized related to stock options was $2.6 million and $1.6 million during the third quarter of fiscal 2020 and 2021, ~~we recognized $5.5~~and $12.6 million and ~~$2.0~~$5.7 million ~~in stock-based~~during the first three quarters of fiscal 2020 and 2021.

At the end of the third quarter of fiscal 2021, total unrecognized employee compensation ~~expense~~cost related to ~~stock options.~~outstanding options was $21.6 million, which is expected to be recognized over a weighted-average period of 2.3 years.

2124

Table of Contents

PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

At the end of the first quarter of fiscal 2021, total unrecognized employee compensation cost related to outstanding options was $8.5 million, which is expected to be recognized over a weighted-average period of 1.2 years.

RSUs and PRSUs

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


		Number of RSUs Outstanding	Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)			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	Unvested balance at the end of fiscal 2020	25,434,597	$	18.72	$	452,736	Unvested balance at the end of fiscal 2020	25,434,597	$	18.72	$	452,736
Granted	Granted	10,927,370	9.76				Granted	16,650,722	11.73
Assumed in an acquisition							Assumed in an acquisition	2,016,061	15.79
Vested	Vested	(2,524,966)	17.57				Vested	(8,445,201)	16.95
Forfeited	Forfeited	(1,092,135)	18.17				Forfeited	(2,308,191)	16.94

Unvested balance at the end of the first quarter of fiscal 2021		32,744,866	$	15.83	$	438,253
Unvested balance at the end of the third quarter of fiscal 2021							Unvested balance at the end of the third quarter of fiscal 2021	33,347,988	$	15.62	$	536,903

During the third quarter and first three quarters of fiscal 2021, we issued 179,616 and 1,631,512 shares of performance RSUs (PRSUs), at a target percentage of 100%, with both performance and service vesting conditions payable in common stock, from 0% to 125% of the target number granted, contingent upon the degree to which the performance condition is met. Any portion of shares that are not earned will be canceled.

Stock-based compensation expense recognized related to RSUs and PRSUs was $41.0 million and $50.4 million during the third quarter of fiscal 2020 and 2021, ~~we recognized $37.3~~and $118.7 million and ~~$46.8~~$147.4 million ~~in stock-based compensation expense related to RSUs.~~during the first three quarters of fiscal 2020 and 2021. At the end of the ~~first~~third quarter of fiscal 2021, total unrecognized employee compensation cost related to unvested RSUs was ~~$476.1~~$476.6 million, which is expected to be recognized over a weighted-average period of ~~3.0~~2.8 years.

Restricted Stock

A summary of the restricted stock activity under our 2015 Plan and related information is as follows:


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

Vested	Vested	(543,859)	19.43				Vested	(1,031,540)	19.60
Forfeited/canceled	Forfeited/canceled	(229,605)	20.15				Forfeited/canceled	(316,965)	20.38

Unvested balance at the end of the first quarter of fiscal 2021		1,353,742	$	19.55	$	18,100
Unvested balance at the end of the third quarter of fiscal 2021							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 met. ~~During~~Stock-based compensation expense recognized related to restricted stock was $4.4 million and $0.8 million during the ~~first~~third quarter of fiscal 2020 and 2021, ~~we recognized $7.5~~and $19.2 million and ~~$4.3~~$7.9 million ~~in stock-based compensation expense related to restricted stock.~~during the first three quarters of fiscal 2020 and 2021. At the end of the ~~first~~third quarter of fiscal 2021, total unrecognized employee compensation cost related to unvested restricted stock was ~~$9.9~~$4.4 million, which is expected to be recognized over a weighted-average period of ~~1.6~~1.2 years.

2225

Table of Contents

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):


		First Quarter of Fiscal							Third Quarter of Fiscal				First Three Quarters of Fiscal
		2020		2021			2020		2021		2020		2021
Cost of revenue—product	Cost of revenue—product	$	977	$	996	Cost of revenue—product	$	912	$	1,027	$	2,843	$	3,013
Cost of revenue—subscription services	Cost of revenue—subscription services	3,951		3,392		Cost of revenue—subscription services	3,517		3,883		11,101		10,961
Research and development	Research and development	28,245		28,711		Research and development	27,827		29,220		85,180		87,770
Sales and marketing	Sales and marketing	18,314		16,272		Sales and marketing	16,802		14,898		51,171		48,018
General and administrative	General and administrative	10,670		9,323		General and administrative	5,171		10,581		24,495		29,993
Total stock-based compensation expense	Total stock-based compensation expense	$	62,157	$	58,694	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 ~~12.~~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 stock options, common stock related to unvested RSUs ~~repurchasable~~and PRSUs, cancelable shares from restricted stock, our Notes to the extent dilutive, and common stock issuable pursuant to the ESPP. These potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-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):


		First Quarter of Fiscal							Third Quarter of Fiscal				First Three Quarters of Fiscal
		2020		2021			2020		2021		2020		2021
Net loss	Net loss	$	(100,336)	$	(90,594)	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	Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	245,334		262,935		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	Net loss per share attributable to common stockholders, basic and diluted	$	(0.41)	$	(0.34)	Net loss per share attributable to common stockholders, basic and diluted	$	(0.12)	$	(0.28)	$	(0.78)	$	(0.87)

Table of Contents

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):

First Quarter of Fiscal
2020 2021
Stock options to purchase common stock 34,001 25,590
Unvested RSUs 23,846 29,146
Restricted stock subject to repurchase 2,632 1,705
Shares related to convertible senior notes 21,884 21,884
Shares issuable pursuant to the ESPP 297 1,046
Total 82,660 79,371

~~Table of Contents~~

~~PURE STORAGE, INC.~~

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


	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

Note ~~13.~~14. Other Income (Expense), Net

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


		First Quarter of Fiscal							Third Quarter of Fiscal				First Three Quarters of Fiscal
		2020		2021			2020		2021		2020		2021
Interest income⁽¹⁾	Interest income⁽¹⁾	$	6,834	$	6,231	Interest income(1)	$	6,770	$	3,728	$	20,376	$	14,383
Interest expense⁽²⁾	Interest expense⁽²⁾	(6,667)		(7,151)		Interest expense(2)	(7,077)		(7,989)		(20,725)		(22,573)
Foreign currency transactions losses		(1,981)		(2,386)
Other expense		(2)		(110)
Foreign currency transactions gains (losses)						Foreign currency transactions gains (losses)	97		(699)		(2,329)		(277)
Other income						Other income	219		73		219		1,767
Total other income (expense), net	Total other income (expense), net	$	(1,816)	$	(3,416)	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 ~~the Notes~~our debt and the contractual interest expense related to ~~the Notes and long-term~~our debt.

Note ~~14.~~15. Income Taxes

Our provision for income tax primarily reflects taxes on international operations and state income taxes. The difference between the income tax provision that would be derived by applying the statutory rate to our loss before income taxes and the income tax provision recorded was primarily attributable to changes in our valuation allowance, stock-based compensation expense and research and development credits.

At the end of the ~~first~~third quarter of fiscal 2021, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for fiscal 2020.

Note ~~15.~~16. Segment Information

Our chief operating decision maker is our Chief Executive Officer. Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. We have 1 business activity and there are 0 segment managers who are held accountable for operations or operating results. Accordingly, we have a single reportable segment.

Table of Contents

PURE STORAGE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Disaggregation of Revenue

The following table 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):


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

United States	United States	$	228,939	$	264,146	United States	$	312,010	$	302,091	$	835,545	$	847,916
Rest of the world	Rest of the world	97,761		102,973		Rest of the world	116,399		108,528		315,891		333,545
Total revenue	Total revenue	$	326,700	$	367,119	Total revenue	$	428,409	$	410,619	$	1,151,436	$	1,181,461

~~Table of Contents~~

~~PURE STORAGE, INC.~~

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

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							At the End of
		Fiscal 2020		First Quarter of Fiscal 2021			Fiscal 2020		Third Quarter of Fiscal 2021

United States	United States	$	113,942	$	127,006	United States	$	113,942	$	146,945
Rest of the world	Rest of the world	8,798		9,202		Rest of the world	8,798		11,255
Total long-lived assets	Total long-lived assets	$	122,740	$	136,208	Total long-lived assets	$	122,740	$	158,200

2528

Table of Contents

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) 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 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 30.

Overview

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 an innovative and highly-integrated data platform of products and subscription services, consisting of Cloud Data Infrastructure (integrated hardware and software appliances which run in on-premise data centers), Cloud Data Services (software services which run natively in major public cloud infrastructures), and Cloud Data Management (software hosted data management services to manage our entire platform).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 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.

2629

Table of Contents

Subscription to Innovation - Delivering a subscription with low total cost of ownership, eliminating the need for forklift hardware replacements, and providing customizable capacity and mobility, whether on-premise, in the cloud or hybrid cloud. We expect our subscription services sales to continue to grow faster than sales of our integrated appliances as a result of our customers choosing to consume our 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 any hybrid or multi-cloud architecture. By combining Portworx container data services, which includes storage, data protection, data security and disaster recovery/backup, with our data services platforms and Pure Service Orchestrator software, this acquisition further expands our Modern Data ~~Services~~ Experience~~subscription services.~~ and ability to deliver comprehensive, multi-cloud data services to support Kubernetes and containers.

Executive Officers

Paul Mountford will step down as our Chief Operating Officer at the 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 Coronavirus (COVID-19) pandemic. The global pandemic has resulted in significant global social and business disruption and ~~economic~~economic contraction.

~~Our business and our financial results during the first quarter of fiscal 2021 benefited from increased customer demand of mission critical IT needs arising in response to the unprecedented pandemic.~~We fulfilled these orders without significant delays and supply shortages based on the resilience of our global supply chain and manufacturing operations. Partially offsetting this tailwind, we saw an increase in opportunities in our pipeline that were expected to close during the quarter but did not close. We also experienced lower demand levels in certain international countries that are significantly impacted by the pandemic. Operating expenses during the first quarter of fiscal 2021 were also lower as a result of impacts of COVID-19 in the areas of reduced travel, marketing costs, and personnel costs.

The global economic contraction due to COVID-19 ~~has created~~and its recent resurgence continues to create significant uncertainty and is ~~expected to have~~having an adverse impact on our sales growth during fiscal ~~2021,~~2021; however, we are not able to currently estimate the ultimate impact.

Components of Results of Operations

Revenue

We derive revenue primarily from the sale of our Cloud Data Infrastructure, including FlashArray and FlashBlade products and subscription services which includes our Evergreen Storage,subscription, and our unified subscription that includes Pure as-a-Service and Cloud ~~Data Services~~ Block Store~~subscription services.~~. 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 transfer of control to our customers and the satisfaction of our performance obligations. Products are typically shipped directly by us to customers, and our channel partners do not stock our inventory. We expect our product revenue may vary from period to period based on, among other things, the timing and size of orders and delivery of products and the impact of significant transactions.

We generally recognize revenue from ~~Evergreen Storage~~ subscription services ~~agreements and~~ ~~Pure as-a-Service~~ ~~ratably~~ over the contractual service period and professional services as delivered. We expect our subscription services revenue to increase as we add new customers and our existing customers renew and expand their consumption and service levels.

Table of Contents

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 allocated overhead costs, inventory write-offs, amortization of intangible assets pertaining to developed technology, and freight. Allocated overhead costs consist of certain employee benefits and facilities-related costs. We expect our cost of product revenue to increase in absolute dollars as our product revenue increases.

~~Table of Contents~~

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

Operating Expenses

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

Research and Development. Research and development 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 increase slightly as a percentage of revenue, as we continue to invest in new and existing technologies.~~dollars.

Sales and Marketing. Sales and marketing 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 it may decrease as a percentage of revenue. We intend to continue expanding our sales force and increasing investments with our channel partners. We believe these costs will be offset by efficiencies as we scale.dollars.

General and Administrative. General and administrative 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 increase slightly 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 related to cash, cash equivalents and marketable securities, interest expense related to ~~convertible senior notes~~our debt and gains (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.

2831

Table of Contents

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 (dollars in thousands, unaudited):

Revenue

First Quarter of Fiscal Change
2020 2021 $ %
(dollars in thousands, unaudited)
Product revenue $ 238,741 $ 246,939 $ 8,198 3 %
Subscription services revenue 87,959 120,180 32,221 37 %
Total revenue $ 326,700 $ 367,119 $ 40,419 12 %

Total sales or bookings of our products and subscription services during the first quarter of fiscal 2021 increased approximately 24% compared to the first quarter of fiscal 2020. Total sales or bookin~~gs includes orders that have not been fulfilled and are cancellable are excluded from the remaining performance obligation.~~


	Third Quarter of Fiscal				Change				First Three Quarters of Fiscal				Change
	2020		2021		$		%		2020		2021		$		%
(dollars in thousands, unaudited)
Product revenue	$	323,268	$	274,470	$	(48,798)	(15)	%	$	862,137	$	793,718	$	(68,419)	(8)	%
Subscription services revenue	105,141		136,149		31,008		29	%	289,299		387,743		98,444		34	%
Total revenue	$	428,409	$	410,619	$	(17,790)	(4)	%	$	1,151,436	$	1,181,461	$	30,025	3	%

Total revenue ~~increased~~decreased by ~~$40.4~~$17.8 million, or ~~12%~~4%, during the ~~first~~third quarter of fiscal 2021 compared to the ~~first~~third quarter of fiscal 2020 and increased by $30.0 million, or 3%, during the first three quarters of fiscal 2021 compared to the first three quarters of fiscal 2020.

The 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 partially offset by an increase in subscription services revenue from both our Evergreen Storage subscription services, and our unified subscription that includes Pure as-a-Service and Cloud Block Store.

The increase in total ~~sales and~~ revenue during the first three quarters of fiscal 2021 compared to the first three quarters of fiscal 2020 was largely driven by ~~an increase~~increases in sales of both our Evergreen Storage subscription services, and ~~sales of~~ our unified subscription that includes Pure as-a-Service and Cloud Block Store.

~~Sales~~ The increase in revenue of ~~FlashArray//C~~ ~~and~~ ~~FlashBlade, and repeat sales to existing customers contributed to the growth of~~our subscription services was partially offset by a decline in product revenue ~~during first quarter of fiscal 2021.~~impacted by the headwinds caused by the COVID-19 pandemic.

During the ~~first~~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 ~~15%~~by 1% from ~~$228.9~~$835.5 million to ~~$264.1~~$847.9 million ~~year over year~~ and total rest of the world revenue grew 5%6% from ~~$97.8~~$315.9 million to ~~$103.0 million year over year.~~$333.5 million. For further details on revenues by geography, see Note 1516 of Part I, Item 1 of this Quarterly Report on Form 10-Q.

Deferred Revenue

Table of Contents

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


		First Quarter of Fiscal							Third Quarter of Fiscal				First Three Quarters of Fiscal
		2020		2021			2020		2021		2020		2021
Beginning balance	Beginning balance	$	535,920	$	697,288	Beginning balance	$	607,263	$	724,751	$	535,920	$	697,288
Additions	Additions	117,894		131,734		Additions	142,164		180,285		400,605		467,454
Recognition of deferred revenue	Recognition of deferred revenue	(89,584)		(122,962)		Recognition of deferred revenue	(106,229)		(142,272)		(293,327)		(401,978)
Ending balance	Ending balance	$	564,230	$	706,060	Ending balance	$	643,198	$	762,764	$	643,198	$	762,764

Revenue recognized during the ~~first~~third quarter of fiscal 2020 and 2021, from deferred revenue at the beginning of each respective period was ~~$79.3~~$101.4 million and ~~$108.7~~$121.9 million.

~~Table~~ Revenue recognized during the first three quarters of ~~Contents~~

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 ~~$912.0~~$1,010.4 million at the end of the ~~first~~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. ~~For orders~~Orders that are contracted but have not been fulfilled and that can be canceled by customers ~~the order values~~ are excluded from remaining performance obligations. Of the ~~$912.0~~$1,010.4 million contracted but not recognized revenue at the end of the ~~first~~third quarter of fiscal 2021, we expect to recognize approximately ~~42% over~~43% over the next 12 months, and the remainder thereafter.

Cost of Revenue and Gross Margin


		First Quarter of Fiscal								Change									Third Quarter of Fiscal				Change						First Three Quarters of Fiscal				Change
		2020			2021			$		%			2020			2021			$		%		2020			2021			$		%
(dollars in thousands, unaudited)	(dollars in thousands, unaudited)											(dollars in thousands, unaudited)
Product cost of revenue	Product cost of revenue	$	75,615		$	68,289		$	(7,326)	(10)	%	Product cost of revenue	$	89,086		$	85,634		$	(3,452)	(4)	%	$	256,617		$	237,664		$	(18,953)	(7)	%
Stock-based compensation	Stock-based compensation	977			996			19		2	%	Stock-based compensation	912			1,027			115		13	%	2,843			3,013			170		6	%
Total product cost of revenue	Total product cost of revenue	$	76,592		$	69,285		$	(7,307)	(10)	%	Total product cost of revenue	$	89,998		$	86,661		$	(3,337)	(4)	%	$	259,460		$	240,677		$	(18,783)	(7)	%
% Product revenue	% Product revenue	32		%	28		%					% Product revenue	28		%	32		%					30		%	30		%

Subscription services cost of revenue	Subscription services cost of revenue	$	29,770		$	37,617		$	7,847	26	%	Subscription services cost of revenue	$	34,256		$	43,559		$	9,303	27	%	$	95,531		$	121,756		$	26,225	27	%
Stock-based compensation	Stock-based compensation	3,951			3,392			(559)		(14)	%	Stock-based compensation	3,517			3,883			366		10	%	11,101			10,961			(140)		(1)	%
Total subscription services cost of revenue	Total subscription services cost of revenue	$	33,721		$	41,009		$	7,288	22	%	Total subscription services cost of revenue	$	37,773		$	47,442		$	9,669	26	%	$	106,632		$	132,717		$	26,085	24	%
% of Subscription services revenue	% of Subscription services revenue	38		%	34		%					% of Subscription services revenue	36		%	35		%					37		%	34		%

Total cost of revenue	Total cost of revenue	$	110,313		$	110,294		$	(19)	—	%	Total cost of revenue	$	127,771		$	134,103		$	6,332	5	%	$	366,092		$	373,394		$	7,302	2	%
% of Total revenue	% of Total revenue	34		%	30		%					% of Total revenue	30		%	33		%					32		%	32		%

Product gross margin	Product gross margin	68		%	72		%					Product gross margin	72		%	68		%					70		%	70		%
Subscription services gross margin	Subscription services gross margin	62		%	66		%					Subscription services gross margin	64		%	65		%					63		%	66		%
Total gross margin	Total gross margin	66		%	70		%					Total gross margin	70		%	67		%					68		%	68		%

Table of Contents

~~Product~~The decline in product gross margin ~~benefited~~ during the ~~first~~third quarter of fiscal 2021 was primarily ~~from~~attributable to lower component costs and increased sales of larger FlashArray ~~systems.~~ systems during the third quarter of fiscal 2020 and, to a lesser extent, by an increase in 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. The increase in subscription services gross margin for both periods was driven by increased renewals in Ev~~ergreen~~ Evergreen Storage subscriptions.

Operating Expenses

Research and Development


		First Quarter of Fiscal								Change									Third Quarter of Fiscal				Change						First Three Quarters of Fiscal				Change
		2020			2021			$		%			2020			2021			$		%		2020			2021			$		%
(dollars in thousands, unaudited)	(dollars in thousands, unaudited)											(dollars in thousands, unaudited)
Research and development	Research and development	$	76,830		$	83,735		$	6,905	9	%	Research and development	$	78,836		$	93,761		$	14,925	19	%	$	233,578		$	262,309		$	28,731	12	%
Stock-based compensation	Stock-based compensation	28,245			28,711			466		2	%	Stock-based compensation	27,827			29,220			1,393		5	%	85,180			87,770			2,590		3	%
Total expenses	Total expenses	$	105,075		$	112,446		$	7,371	7	%	Total expenses	$	106,663		$	122,981		$	16,318	15	%	$	318,758		$	350,079		$	31,321	10	%
% of Total revenue	% of Total revenue	32		%	31		%					% of Total revenue	25		%	30		%					28		%	30		%

~~Table of Contents~~

Research and development expense increased by ~~$7.4~~$16.3 million, or 7%15%, during the~~first~~ third quarter of fiscal 2021 compared to the ~~first~~third quarter of fiscal 2020, as we continue to innovate and develop technologies to both enhance and expand our solution portfolio. The increase was primarily driven by a ~~$12.8~~$16.0 million increase in employee compensation and related costs and a $4.6 million increase in outside services expense, partially offset by a ~~$6.0~~$5.6 million decrease in depreciation expense due to revising our estimated useful lives of test equipment and certain computer equipment and ~~software.~~software during the first quarter of fiscal 2021.

Research and development expense increased by $31.3 million, or 10%, during the first three quarters of fiscal 2021 compared to the first three quarters of fiscal 2020. The increase was primarily driven by a $39.2 million increase in employee compensation and related costs and a $6.8 million increase in outside services expense, partially offset by a $17.6 million decrease in depreciation expense due to revising our estimated useful lives of test equipment and certain computer equipment and software during the first quarter of fiscal 2021.

Sales and Marketing


		First Quarter of Fiscal								Change									Third Quarter of Fiscal				Change						First Three Quarters of Fiscal				Change
		2020			2021			$		%			2020			2021			$		%		2020			2021			$		%
(dollars in thousands, unaudited)	(dollars in thousands, unaudited)											(dollars in thousands, unaudited)
Sales and marketing	Sales and marketing	$	148,312		$	157,161		$	8,849	6	%	Sales and marketing	$	168,017		$	157,384		$	(10,633)	(6)	%	$	486,462		$	469,131		$	(17,331)	(4)	%
Stock-based compensation	Stock-based compensation	18,314			16,272			(2,042)		(11)	%	Stock-based compensation	16,802			14,898			(1,904)		(11)	%	51,171			48,018			(3,153)		(6)	%
Total expenses	Total expenses	$	166,626		$	173,433		$	6,807	4	%	Total expenses	$	184,819		$	172,282		$	(12,537)	(7)	%	$	537,633		$	517,149		$	(20,484)	(4)	%
% of Total revenue	% of Total revenue	51		%	47		%					% of Total revenue	43		%	42		%					47		%	44		%

Table of Contents

Sales and marketing expense decreased by $12.5 million, or 7%, during the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020, primarily due to a decrease of $19.7 million in marketing and travel spend due to the COVID-19 pandemic, partially offset by a $3.6 million increase in employee compensation and related costs as we continue to invest in certain areas within sales and marketing and a $2.7 million increase in outside services expense.

Sales and marketing expense ~~increased~~ decreased by ~~$6.8~~$20.5 million, or 4%, during thefirst ~~quarter~~ three quarters of fiscal 2021 compared to the first ~~quarter~~ three quarters of fiscal ~~2020~~2020. The decrease was primarily due to a decrease of $49.5 million in marketing and travel spend due to the COVID-19 pandemic, partially offset by, a $18.5 million increase in employee compensation and related costs, a $5.9 million increase in outside services expense as we continue to grow our sales force and expand our international ~~presence. The increase was primarily driven by~~presence, and a ~~$10.8~~$4.5 million increase in office and facilities-related expenses. in

General and Administrative


	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 $9.1 million, or 24%, during the 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 quarters of fiscal 2021 compared to the first three quarters of fiscal 2020, primarily due to employee compensation and related costs ~~which included a $4.2 million~~ ~~increase~~ ~~in sales commission expense. The increase was~~driven by increased headcount, partially offset by ~~a $6.6 million~~ ~~decrease in travel~~office and ~~related costs primarily due to COVID-19 restrictions.~~

~~General and Administrative~~

First Quarter of Fiscal Change
2020 2021 $ %
(dollars in thousands, unaudited)
General and administrative $ 31,440 $ 31,802 $ 362 1 %
Stock-based compensation 10,670 9,323 (1,347) (13) %
Total expenses $ 42,110 $ 41,125 $ (985) (2) %
% of Total revenue 13 % 11 %

facilities-related expenses.

Restructuring and Other

First Quarter of Fiscal Change
2020 2021 $
(dollars in thousands, unaudited)
Restructuring and other $ — $ 14,702 $ 14,702
% of Total revenue — % 4 %

~~In February 2020 and prior to the effects of the COVID-19 pandemic, we effected a workforce realignment plan as part of an effort to streamline~~ our operations. We estimated approximately $6.5 million of restructuring costs related to one-time involuntary termination benefit costs, of which $5.8 million was recognized in the first quarter of fiscal 2021. We expect to recognize the remaining costs associated with the plan of termination in the second quarter of fiscal 2021. The liability for unpaid amounts at the end of the first quarter was not material.


	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 ~~quarter~~three quarters of fiscal 2021, we incurred incremental costs of $8.9 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 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 one-time involuntary termination benefit costs related to workforce realignment plans.

3135

Table of Contents

Other Income (Expense), Net


		First Quarter of Fiscal								Change					Third Quarter of Fiscal					Change			First Three Quarters of Fiscal					Change
		2020			2021			$				2020			2021			$		2020			2021			$
(dollars in thousands, unaudited)	(dollars in thousands, unaudited)										(dollars in thousands, unaudited)
Other income (expense), net	Other income (expense), net	$	(1,816)		$	(3,416)		$	(1,600)		Other income (expense), net	$	9		$	(4,887)		$	(4,896)	$	(2,459)		$	(6,700)		$	(4,241)
% of Total Revenue		(1)		%	(1)		%
% of Total revenue											% of Total revenue	—		%	(1)		%			—		%	(1)		%

Other income (expense), net decreased by $4.9 million during the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 and decreased by $4.2 million during the first three quarters of fiscal 2021 compared to the first three quarters of fiscal 2020, primarily due to a decrease in interest income resulting from lower interest rate environment and, to a lesser extent, higher interest expense due to borrowings under our revolving line of credit.

Provision for Income Taxes


		First Quarter of Fiscal								Change									Third Quarter of Fiscal				Change						First Three Quarters of Fiscal			Change
		2020			2021			$		%			2020			2021			$		%		2020			2021			$		%
(dollars in thousands, unaudited)	(dollars in thousands, unaudited)											(dollars in thousands, unaudited)
Provision for income taxes	Provision for income taxes	$	1,096		$	2,297		$	1,201	110	%	Provision for income taxes	$	1,731		$	4,121		$	2,390	138	%	$	3,288		$	8,869		$	5,581	170%
% of Total revenue	% of Total revenue	—		%	1		%					% of Total revenue	—		%	1		%					—		%	1		%

The provision for income taxes increased during the third quarter and first ~~quarter~~ three quarters of fiscal 2021 compared to the third quarter and first ~~quarter~~ three quarters of fiscal 2020primarily attributable to an increase in foreign income ~~taxes.~~taxes and the release of valuation allowance related to unrealized gains on available for sale securities in the third quarter and first three quarters of fiscal 2020.

Liquidity and Capital Resources

At the end of the ~~first~~third quarter of fiscal 2021, we had cash, cash equivalents and marketable securities of ~~$1,274.1~~$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, debt instruments issued by foreign governments, and 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 liquidity and working capital needs could be negatively impacted by the COVID-19 pandemic and global economic recession which ~~may result~~has resulted in reduced sales, and certain of our customers or partners being unable to timely fulfill their payment obligations to us. We may continue to enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights and may seek additional equity or debt financing in the future. For example, we acquired Portworx for $353.0 million in October 2020.

Table of Contents

Revolving Credit Facility

In August 2020, we entered into a Credit Agreement with a consortium of financial institutions and lenders that provides for a five-year, senior secured revolving credit facility of $300.0 million (Credit Facility). Proceeds from the Credit Facility may be used for general corporate purposes and working capital. The Credit Facility expires, absent default or early termination by us, on the earlier of (i) August 24, 2025 or (ii) 91 days prior to the stated maturity of the convertible senior notes unless, on 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 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. Loans under the Credit Facility are collateralized by substantially all of our assets and subject to certain restrictions and two financial ratios measured as of the last day of each fiscal quarter, commencing with the fiscal quarter ending January 31, 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 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 $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 and mature on various dates through August 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 67 in Part I, Item 1 of this report.

3237

Table of Contents

Share Repurchase Program

In August 2019, our board of directors approved the repurchase of up to $150.0 million of our common stock. The authorization allows us to repurchase shares of our common stock opportunistically and will be funded from available working capital. Repurchases may be made at management’s discretion from time to time on the open market through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing. The share repurchase program does not obligate us to acquire any of our common stock, has no end date, and may be suspended or discontinued by us at any time without prior notice. During the ~~first~~third quarter of fiscal 2021, we repurchased and retired ~~5,959,430~~1,360,000 shares of common stock at an average purchase price of ~~$11.75~~$15.72 per share for an aggregate repurchase price of ~~$70.0~~$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 ~~$65.0~~$23.6 million remained under our share repurchase authorization as of the end of the ~~first~~third quarter of fiscal 2021.

~~Letters of Credit~~

At the end of fiscal 2020 and the end of the first quarter of fiscal 2021, we had letters of credit in the aggregate amount of $11.5 million, in connection with our facility leases. The letters of credit are collateralized by restricted cash and mature on various dates through August 2029.

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


		First Quarter of Fiscal							First Three Quarters of Fiscal
		2020		2021			2020		2021
Net cash provided by operating activities	Net cash provided by operating activities	$	6,642	$	35,103	Net cash provided by operating activities	$	119,716	$	118,608
Net cash used in investing activities	Net cash used in investing activities	$	(198,553)	$	(8,911)	Net cash used in investing activities	$	(312,649)	$	(415,853)
Net cash provided by (used in) financing activities		$	31,576	$	(41,247)
Net cash provided by financing activities						Net cash provided by financing activities	$	48,753	$	194,374

Operating Activities

Net cash provided by operating activities during the first ~~quarter~~ three quarters of fiscal ~~2020~~2021 was primarily driven by cash collections from sales of our product and ~~2021~~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 payments to our contract manufacturers, employee compensation, and general corporate operating expenditures.

Net cash provided by operating activities during the first three quarters of fiscal 2020 was primarily driven by cash collections from sales of our product and subscription services, partially offset by payments to our contract manufacturers, employee compensation, and general corporate operating expenditures.

Investing Activities

Net cash used in investing activities during the first three quarters of fiscal 2021 was driven by net cash paid for our acquisition of Portworx, capital expenditures, partially offset by net sales of marketable securities.

Net cash used in investing activities during the first ~~quarter~~ three quarters of fiscal ~~2021~~ ~~is primarily driven by~~ ~~capital expenditures and net purchases of marketable securities, partially offset by maturities of marketable securities.~~

~~Net cash used in investing activities during the first~~ ~~quarter of fiscal~~ 2020 ~~is primarily drive~~was driven by net purchases of marketable securities, capital expenditures, net cash paid for our acquisition of Compuverde, and ~~capital expenditures.~~intangible assets acquired.

Financing Activities

Net cash ~~used in~~provided by financing activities during the first ~~quarter~~three quarters of fiscal 2021 iswas primarily driven by ~~share repurchases, partially offset by~~net proceeds from borrowing under revolving line of credit, proceeds from exercise of stock options and issuance of common stock from ~~ESPP.~~employee stock purchase plan (ESPP), partially offset by share repurchases.

Net cash provided by financing activities during the first ~~quarter~~three quarters of fiscal 2020 ~~is primarily~~ was driven by proceeds from ~~exercise of stock options and~~ issuance of common stock from ESPP and exercise of stock options, partially offset by repayment of debt assumed in connection with the acquisition of ~~Compuverde.~~

Compuverde, and tax withholding on vesting of restricted stock.

~~Table of Contents~~

Contractual Obligations and Commitments

Except as set forth in Notes 78 to 910 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.

Table of Contents

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. generally accepted accounting 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.

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, 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 27, 2020, except for the change in estimate of the useful life for certain property and equipment.

Available Information

Our website is located at www.purestorage.com, and our investor relations website is located at 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. We will also provide a link to the section of the SEC's website at www.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.

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.

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, asset-backed securities, and~~its agencies, debt instruments of highly rated ~~corporate debt.~~ corporations, debt instruments issued by foreign governments, and asset-backed securities. At the end of the ~~first~~third quarter of fiscal 2021 we had cash, cash e~~quivalents~~equivalents and marketable securities of ~~$1,274.1 million~~.$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 fluctuation in interest rates, which may affect our interest income and the fair value of our investments.

~~Table of Contents~~

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 ~~$10.2~~$11.2 million at the end of the ~~first~~third quarter of fiscal ~~2021~~2021.

Table of Contents.

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 the end of the ~~first~~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 ~~$7.9~~$3.6 million at the end of the ~~first~~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, at the end of the ~~first~~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.

Changes in Internal Control over Financial Reporting

As a result of COVID-19, most of our workforce has been working from home since March 2020. During the ~~first~~third quarter of fiscal 2021 there were 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 ~~first~~third quarter 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.

3540

Table of Contents

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we 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 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 common stock could decline and investors might lose all or part of their investment.

Summary of Risk Factors

Our business is subject to numerous risks and uncertainties, many of which are beyond our control. Some of the principal risks associated with our business include the following:

•Our business, operating results, 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 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, our ability to attract and retain customers could be harmed.

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

•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.

•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.

Table of Contents

Risks Related to Our Business and Industry

Our business, operating results, 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 will depend on ongoing and future developments, which are highly uncertain and difficult to predict.

The COVID-19 pandemic has resulted in 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 ~~will depend~~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 control. Potential negative impacts of these external factors include, but are not limited to, material adverse effects on demand for our products and ~~services;~~services, including due to budget constraints and other uncertainties; our ability to gain new customers; our employee productivity; our supply chain and sales and distribution channels; collectability of customer accounts; our ability to execute strategic plans; impairments; and our profitability and cost structure.

Further, ~~Further, to the extent~~ the COVID-19 pandemic ~~adversely affects our business, results of operations~~has enhanced, and ~~financial condition, it~~ may ~~also have the effect of exacerbating the~~further exacerbate, other risks discussed in this “Risk Factors” ~~section.~~section, particularly risks associated with demand, market trends, relationship building and sales efforts, as well as risks affected by the shift to our workforce largely working from home.

We are continuing to monitor the pandemic and intend to ~~take~~continue taking appropriate ~~actions~~steps in accordance with the recommendations and requirements of relevant authorities.

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

The market for data storage products is rapidly evolving. Changes in the application requirements, data center infrastructure trends and the broader technology landscape result in evolving customer requirements for capacity, performance scalability and enterprise features of storage systems. Our future financial performance depends on our ability to adapt to competitive dynamics and emerging customer demands and trends. The introduction of all-flash storage products by incumbent vendors and changes or advances in alternative technologies or adoption of cloud storage offerings that do not utilize our storage platform could adversely affect the demand for our products.

~~Table of Contents~~

Offerings from 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. It is difficult to predict with any precision customer adoption rates of new offerings, customer demand for our products or the future growth rate and size of our addressable market. A slowing or reduction in demand for our data storage products caused by technological challenges, alternative technologies and products or 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.

Table of Contents

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 established companies and new entrants.

We face intense competition from a number of established companies that sell competitive storage products, including Dell EMC, HP Enterprise, Hitachi Vantara, IBM, NetApp and 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 compete against cloud providers and vendors of hyperconverged products, which combine networking and storage. These providers are growing and expanding their product offerings, potentially displacing some demand for our products. In addition, some of our competitors offer bundled products and services in order to reduce the initial cost of their storage products. Further, some of our competitors offer their storage products either at significant discounts or even for free in competing against us.

Many competitors have developed or acquired competing storage technologies with features or data reduction technologies that directly compete with our products or have introduced business programs designed, among other things, to compete with our innovative programs, such as our Evergreen Storage model. We expect our competitors to continue to improve their products, reduce their prices and introduce new features, services and technologies that may, or may claim to, offer greater value compared to our products. In addition, 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.

~~Table of Contents~~

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

Many of our competitors benefit from established brand awareness and long-standing relationships with key decision makers at our current and prospective customers. Our competitors often leverage these existing relationships to discourage customers from evaluating or purchasing our products. Additionally, most of our prospective customers have existing storage products supplied by our competitors who have an advantage in retaining the customer because, among other things, the incumbent vendor already understands the customer’s IT infrastructure, user demands and needs, or the customer is concerned about actual or perceived costs of switching to a new vendor and ~~technology.~~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 would adversely affect our business and operating results.

Table of Contents

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

We believe that building and maintaining brand recognition and customer goodwill is critical to our success. Our efforts in this area have, on occasion, been hampered by the marketing efforts of our competitors, which have included negative or misleading statements about us and our products. If we are unable to effectively respond to the marketing efforts of our competitors and protect our brand and customer goodwill now or in the future, our business will be adversely affected.

If we fail to successfully maintain or grow our relationships with 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 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 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 provided to our customers, could harm our business, operating results and financial condition.

Our partners may choose to discontinue offering our products and services or may not devote sufficient attention and resources toward selling our products and services. We typically enter into non-exclusive, written agreements with our channel partners. These agreements generally have a one-year, self-renewing term, have no minimum sales commitment and do not prohibit our channel partners from offering products and services that compete with ours. Additionally, our competitors provide incentives to our existing and potential channel partners to use, purchase or offer their products and services or to prevent or reduce sales of our products and services. The occurrence of any of these events could harm our business, operating results and financial condition.

Our sales cycles can be long, unpredictable and expensive, making it difficult for us to predict future sales.

Our sales efforts involve educating our customers about the use and benefits of our products and often involves evaluation process that can result in a lengthy sales 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 and other delays. A substantial portion of our quarterly sales typically occurs during the last several weeks of the quarter, which we believe largely reflects customer buying patterns of products similar to ours and other products in the technology industry generally.

~~Table of Contents~~

Since revenue from a product sale is not recognized until performance obligations are satisfied, a substantial portion of our sales late in a quarter may negatively impact the recognition of the associated revenue. Furthermore, our products come with a 30-day money back guarantee, allowing a customer to return a product within 30 days of receipt if the customer is not satisfied with its purchase for any reason. These factors, among others, make it difficult for us to predict when customers will purchase our products, which may adversely affect our operating results and cause our operating results to fluctuate. In addition, if sales expected from a specific customer for a particular quarter are not realized in that quarter or at all, our operating results may suffer.

Table of Contents

Sales to U.S. federal, state, local and foreign governments are subject to a number of challenges and risks that may adversely impact our business.

Sales to U.S. federal, state, local and foreign governmental agencies may in the future account for a significant portion of our revenue and sales to governmental agencies impose additional challenges and risks to our sales efforts. Government certification requirements applicable to our products may change and in doing so restrict our ability to sell into the U.S. federal government sector until we have attained the revised certification. Government demand and payment for our products and services may be impacted by public sector budgetary cycles and funding authorizations, including in connection with an extended federal government shutdown, with funding reductions or delays adversely affecting public sector demand for our products and services. We sell our products to governmental agencies through our channel partners, and these agencies may have statutory, contractual or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our future results of operations. Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our products, which would adversely impact our revenue and results of operations, or institute fines or civil or criminal liability if the audit uncovers improper or illegal activities. Finally, governments may require certain products to be manufactured in the United States and other relatively high-cost manufacturing locations, and we may not manufacture all products in locations that meet these requirements, affecting our ability to sell these products to governmental agencies.

Risks Related to Our Products and Subscription Services Offerings

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

We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. To compete successfully, we must design, develop, market and sell new or enhanced products that provide increasingly higher levels of performance, capacity and reliability and that meet the expectations of our customers, which is a complex and uncertain process. We believe that we must continue to dedicate significant resources to our research and development efforts to maintain or expand our competitive position. Our investments may take longer to generate revenue or may generate less revenue than we anticipate. The introduction of new products by our competitors, or the emergence of alternative technologies or industry standards could render our existing or future products obsolete or less competitive.

As we introduce new or enhanced products, we must successfully manage product launches and transitions to the next generations of our products and encourage our customers to adopt new products and features. If we are not able to successfully manage the development and release of new or enhanced products, our business, operating results and financial condition could be harmed. Similarly, if we fail to introduce new or enhanced products, such as new or improved software features, that meet our customers' needs in a timely or cost-effective fashion, we may lose market share and our operating results could be adversely affected.

~~Table of Contents~~

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

We are now offering all of our products and services on a subscription basis, including our hardware and software products through Pure as-a-Service and Cloud Data Services. These business models are relatively new to the storage market and will continue to evolve, and we may not be able to compete effectively, drive continued revenue growth or maintain the profitability with these business models. Additionally, the subscription models offered by us and our competitors may unfavorably impact the pricing of and demand for our on-premise offerings, which could reduce our revenues and profitability. If we do not successfully execute our business strategy, which includes subscription offerings, or anticipate the needs of our customers, our revenues and profitability could be negatively impacted.

Table of Contents

Our products are highly technical and may contain defects, which could cause data unavailability, loss or corruption that might, in turn, result in liability and harm to our reputation and business.

Our products are highly technical and complex and are often used to store information critical to our customers’ business operations. Our products may contain errors, defects or security vulnerabilities that could result in data unavailability, loss, corruption or other harm to our customers. Some errors in our products may only be discovered after they have been installed and used by customers. Any errors, defects or security vulnerabilities in our products could result in a loss of revenue, injury to our reputation, loss of customers or increased service and warranty costs, any of which could adversely affect our business and operating results. In addition, errors or failures in the products of third-party technology vendors may be attributed to us and may harm our reputation.

We could face claims for product liability, tort or breach of warranty. We may not be able to enforce provisions in our contracts relating to warranty disclaimers and liability limitations. Defending a lawsuit, regardless of its merit, would be costly and could divert management’s attention and adversely affect the market’s perception of us and our products. Our business liability insurance coverage may be inadequate with respect to a claim and future coverage may not be available on acceptable terms or at all. These product-related issues could result in claims against us, and our business, operating results and financial condition could be harmed.

If we are unable to ensure that our products interoperate with third party operating systems, software applications and hardware, we may lose or fail to increase our market share.

Our products must interoperate with our customers’ infrastructure, specifically networks, servers, software and operating systems, which are offered by a wide variety of vendors. When new or updated versions of these operating systems or applications are introduced, we may need to develop updated versions of our software so that our products continue to interoperate properly. We may not deliver or maintain interoperability quickly, cost-effectively or at 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 an IT environment. The servers, network, software and other components and systems 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 this ecosystem to conform to prevailing industry standards. 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, sales of our products could be adversely affected, which may harm our business.

~~Table of Contents~~

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 by our 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.

Table of Contents

We rely on contract manufacturers to manufacture our products, and if we fail to manage our relationships with our contract manufacturers successfully, our business could be negatively impacted.

We rely on a limited number of contract manufacturers to manufacture our products, which reduces our control over the assembly process and exposes us to risks, such as reduced control over quality assurance, costs and product supply. If we fail to manage our relationships with these contract manufacturers effectively, or if these contract manufacturers experience delays, disruptions, capacity constraints or quality control problems, our ability to timely ship products to our customers will be impaired, potentially on short notice, and our competitive position, reputation and financial results could be harmed. If we are required, for whatever reason, to change contract manufacturers or assume internal manufacturing operations, we may lose revenue, incur increased costs and damage our customer relationships. Qualifying a new contract manufacturer and commencing production is expensive and time-consuming. We may need to increase our 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 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 flash;

•price volatility for the components of our products;

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

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

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

~~Table of Contents~~

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.

Table of Contents

As a result of these risks, we cannot assure investors that we will be able to obtain 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. 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 components at competitive prices. Any of the foregoing disruptions could increase our costs and decrease our gross margins, harming our business, operating results and financial condition.

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. 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 orders for components and products that are non-cancelable and non-returnable. Our inventory management systems and related supply chain visibility tools may be inadequate to enable us to make accurate forecasts and effectively manage the supply of our products and components. If we ultimately determine that we have excess supply, we may have to reduce our prices and write down or write off excess or obsolete inventory, which in turn could result in 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 ~~rapid~~ growth in prior periods, and we may not be able to sustain ~~or manage~~ future growth ~~effectively.~~effectively or at all.

We have significantly expanded our overall business, customer base, headcount, channel partner relationships and operations in prior periods, and we anticipate that we will continue to expand and experience growth in future periods. For example, ~~we delivered~~while our year-over-year revenue ~~growth of 12%~~declined 4% for the ~~first~~third quarter of fiscal 2021 compared to the ~~first~~third quarter of fiscal 2020, ~~and~~ our headcount increased from over ~~3,150~~3,350 at the end of the third quarter of fiscal 2020 to over ~~3,500~~3,850 employees at the end of the ~~first~~third quarter of fiscal ~~2020 to the end of the first 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 ~~and manage~~ our growth successfully, we believe that we must, among other things, effectively allocate resources and operate our business across a wide range of priorities.

~~Table of Contents~~

We expect that our future growth will continue to place ~~a significant~~ strain on our managerial, administrative, operational, financial and other resources. We will incur costs associated with this future growth prior to realizing the anticipated benefits, and the return on these investments may be lower, may develop more slowly than we expect or may never materialize. 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.

Table of Contents

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 ~~$90.6~~$229.8 million for the first ~~quarter~~three quarters of fiscal 2021, and we had an accumulated deficit of $1,282.9 million at the end of fiscal 2020 and ~~$1,373.5~~$1,512.7 million at the end of the ~~first~~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.

~~Table of Contents~~

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;

Table of Contents

•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.~~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.

~~Table of Contents~~

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

Existing customers may not renew their subscription services agreements after the initial period and, given 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 products, customer support and pricing 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. 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.

Table of Contents

We expect that revenue from 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~~Our revenue from subscription services ~~will increase~~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 subscription services revenue ratably over the term of the relevant period. As a result, much of the subscription services revenue we report each quarter is derived from agreements that we sold in prior quarters. Consequently, a decline in new or renewed 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 subscription services is not reflected in full in our results of operations until future periods. It is also difficult for us to rapidly increase our subscription services revenue through additional sales in any period, as revenue from renewals must be recognized ratably over the applicable service period.

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 support business initiatives, 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 we undertake 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. 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.

4551

Table of Contents

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 reasonable period of time, we may not be able to realize the expected benefits of these investments or increase our revenue and our business and operating results could suffer.

Our company culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture, and our business may be harmed.

We believe that our company culture has been a critical contributor to our success. Our culture fosters innovation, creativity, teamwork, passion for customers and focus on execution, and facilitates critical knowledge transfer and knowledge sharing. In particular, we believe that the difference between our sales, support and engineering cultures and those of incumbent vendors, is a key competitive advantage and differentiator for our customers and partners. As we grow and change or are required to adapt to changes in business operations 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;

4652

Table of Contents

•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. Regulations have been issued to provide interpretive guidance on certain provisions of the Tax Act, but there are still uncertainties as final regulations have not been issued for all provisions. The issuance of final regulationsSuch 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 infringe their intellectual property rights could be costly and harm our business.

There is a substantial amount of intellectual property litigation in the data storage industry, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding our 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 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, prevent us from manufacturing and selling our products and may require that we procure or develop substitute products that do not infringe, which could require significant effort and expense.

4753

Table of Contents

We may not be able to re-engineer our products to avoid infringement, and we may have to seek a license for the infringed technology, which may not be available on reasonable terms or at all, may significantly increase our operating expenses or may require us to restrict our business activities in one or more respects. Even if we were able to obtain a license, it could be non-exclusive, 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 from damages and costs which may arise from 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 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, will give us the protection that we seek, if at all, or that any patents issued to us will not be challenged, invalidated, circumvented or held to be unenforceable. Our issued and future patents may not provide sufficiently broad protection or may not be enforceable. Further, the laws of certain foreign countries do not provide the same level of protection of corporate proprietary information and assets such as intellectual property, trademarks, trade secrets, know-how and records, as the laws of the United States. For instance, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection. As a result, we may encounter significant problems in protecting and defending our intellectual property or proprietary rights abroad.

Changes to the 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, among other intellectual property rights. We cannot be certain that the steps we have taken will prevent theft, unauthorized use or the reverse engineering of our 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 defend intellectual property infringement claims and enforce their intellectual property 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.

4854

Table of Contents

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 if re-engineering cannot be accomplished on a timely basis, any of which could harm our business, operating results and financial condition.

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 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 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 CCPA places additional requirements on the handling of personal data and is currently subject to a revision and update process. The potential effects of this legislation are far-reaching and may require us to modify our data processing practices and 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.

4955

Table of Contents

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

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

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

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

We devote significant resources to network security, data encryption and other security measures to protect our systems and data, but these security measures cannot provide absolute security. While we use encryption and authentication technologies to secure the transmission and storage of data and prevent third-party access to data or accounts, these security measures are subject to third party security breaches, employee error, malfeasance, faulty password management or other irregularities. Any destructive or intrusive breach of our internal systems could result in the information stored on our networks being accessed, publicly disclosed, lost or stolen.

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

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

We may, from time to time, acquire complementary products, technologies or businesses, such as our ~~acquisition~~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.

5056

Table of Contents

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

We and our suppliers have operations in locations, including our headquarters in California, that are subject to earthquakes, fires, floods and other natural catastrophic events, such as severe weather and geological events, which could disrupt our operations or the operations of our customers and suppliers. Our customers affected by a natural disaster could postpone or cancel orders of our products, which could negatively impact our business. Moreover, should any of our key suppliers fail to deliver components to us as a result of a natural disaster, we may be unable to purchase these components in necessary quantities or may be forced to purchase components in the open market at significantly higher costs. We may also be forced to purchase components in advance of our normal supply chain demand to avoid potential market shortages. Our business interruption insurance may be insufficient to compensate us for losses due to a significant natural disaster or due to man-made factors. Any natural catastrophic events may also prevent our employees from being able to reach our offices in any jurisdiction around the world, and therefore impede our ability to conduct business as usual.

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

5157

Table of Contents

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.

Table of Contents

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.~~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.

~~Table of Contents~~

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.

Table of Contents

Risks Related to Our Common Stock

The trading price of our common stock has been and may continue to be highly volatile, and an active, liquid, and orderly market for our common stock may not be sustained.

The trading price of our common stock has been, and will likely continue to be, highly volatile. Since shares of our 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 $8.76 to ~~$28.66,~~$28.66, through ~~June 5, 2020~~.December 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;

•issuance or new or updated research or reports by securities analysts, including the publication of unfavorable reports or change in recommendation or downgrading of our common stock;

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

~~Table of Contents~~

•litigation involving us, our industry or both;

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

•major catastrophic events;

•sales of large blocks of our stock; or

•departures of key personnel.

In several recent situations where the price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the 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 common stock will likely be influenced by research and reports that securities or industry analysts publish about us or our business. If one or more of these analysts downgrades our stock, lowers their price target, or publishes unfavorable or inaccurate research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

Table of Contents

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 common stock if the market price of our common stock increases.

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 price of our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could depress the trading price of our 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:

•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;

~~Table of Contents~~

•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 common stock.

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

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. If a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business and financial condition.

Table of Contents

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

Purchases of Equity Securities by the Issuer

The following table summarizes our stock repurchase activity for the ~~first~~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
February 3 - March 1 $ — — $ 135,000
March 2 - March 29 $ 11.25 2,887 $ 102,520
March 30 - May 3 $ 12.21 3,072 $ 65,000


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.

~~Table of Contents~~

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 ~~first~~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
February 3 - March 1 $ — — $ —
March 2 - March 29 $ 10.21 126 $ 1,287
March 30 - May 3 $ 10.62 8 $ 87


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.

5662

Table of Contents

Item 6. Exhibits.

Incorporation By Reference

Exhibit
Number

Description

Form

SEC File No.

Exhibit

Filing Date

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

3.1

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

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

4.1

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

4.2

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

4.3

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

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.

31.1*

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.

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.

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

99.1

Form of Confirmation for Capped Call Transactions.

8-K

001-37570

99.1

4/10/2018

101.INS

XBRL Instance Document

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation 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)

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 compensatory plan.

5763

Table of Contents

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:

~~June 11,~~December 9, 2020

By:

/s/ CHARLES GIANCARLO

Charles Giancarlo

Chief Executive Officer and Director

(Principal Executive Officer)

Date:

~~June 11,~~December 9, 2020

By:

/s/ KEVAN KRYSLER

Kevan Krysler

Chief Financial Officer

(Principal Financial and Accounting Officer)

5864