Basis of Presentation and Summary of Significant Accounting Policies | Basis of Presentation and Summary of Significant Accounting Policies Principles of Consolidation 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 the year ended January 31, 2018 . 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 2019 or any future period. Certain prior period amounts have been adjusted as a result of adoption of new accounting pronouncements. Refer to " Recently Adopted Accounting Pronouncements" below for further information. 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. 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, property and equipment and deferred sales commissions, fair values of stock-based awards, provision for income taxes including related reserves, and contingent liabilities, among others. 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. Restricted Cash Restricted cash is comprised of cash collateral related to our leases and for a vendor corporate credit card program. As of January 31, 2018 and April 30, 2018 , we had restricted cash of $14.8 million and $16.5 million on the condensed consolidated balance sheets. 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 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 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 cost basis. Realized gains and losses from the sale of marketable securities and declines in value deemed to be other than temporary are determined on the specific identification method. To date, there have been no declines in value deemed to be other than temporary in any of our securities. Realized gains and losses are reported in other income (expense), net in the condensed consolidated statements of operations. Deferred Commissions Deferred commissions consist of incremental costs paid to our sales force to obtain customer contracts. Deferred commissions related to product revenues are recognized upon transfer of control to customers and deferred commissions related to support subscription 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 period presented are as follows (in thousands): Three Months Ended Beginning balance as of January 31, 2018 (as adjusted) $ 87,313 Additions 15,421 Recognition of deferred commissions (16,690 ) Ending balance as of April 30, 2018 $ 86,044 Of the $86.0 million total deferred commissions balance as of April 30, 2018 , we expect to recognize approximately 23% as commission expense over the next 12 months and the remainder thereafter. There was no impairment loss in relation to capitalized commissions for the three months ended April 30, 2017 and 2018 . Deferred Revenue Deferred revenue primarily consists of amounts that have been invoiced but that have not yet been recognized as revenue and consists of performance obligations pertaining to support 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 three months ended April 30, 2018 are as follows (in thousands): Three Months Ended Beginning balance as of January 31, 2018 (as adjusted) $ 374,102 Additions 75,271 Recognition of deferred revenue (60,759 ) Ending balance as of April 30, 2018 $ 388,614 During the three months ended April 30, 2017 , we recognized $43.0 million in revenue pertaining to deferred revenue as of January 31, 2017 . During the three months ended April 30, 2018 , we recognized $55.6 million in revenue pertaining to deferred revenue as of January 31, 2018 . Of the $388.6 million remaining performance obligations as of April 30, 2018, we expect to recognize approximately 51% as revenue over the next 12 months and the remainder thereafter. Substantially all of our contracted but not invoiced performance obligations are subject to cancellation and, therefore, are not considered in our remaining performance obligations. Revenue Recognition We derive revenue from two sources: (1) product revenue which includes hardware and embedded software and (2) support subscription revenue which includes customer support, hardware maintenance, and software upgrades on a when-and-if-available basis. Our product revenue is derived from the sale of storage hardware and operating system software that is integrated into the hardware. We typically recognize product revenue upon transfer of control to our customers. Products are typically shipped directly by us to customers, and our channel partners do not stock our inventory. Our support subscription revenue is derived from the sale of support subscription, which includes the right to receive unspecified software upgrades and enhancements on a when-and-if-available basis, bug fixes, parts replacement services related to the hardware, as well as access to our cloud-based management and support platform. Revenue related to support subscription is recognized ratably over the contractual term, which generally ranges from one to six years and represents our performance obligations period. The vast majority of our products are sold with support subscription agreements, which typically commence upon transfer of control of the corresponding products to our customers. Costs to service the support subscription are expensed as incurred. In addition, our Evergreen Storage program provides our customers who continually maintain active support subscription agreements for three years with an included controller refresh with each additional three year support subscription renewal. In accordance with revenue recognition guidance, the controller refresh represents an additional performance obligation and the allocated revenue is recognized in the period in which these controllers are shipped. 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 are capable of being distinct in the context of the contract to be accounted for as a combined performance obligation. We allocate transaction price to each performance obligation for contracts that contain multiple performance obligations based on a relative standalone selling price, taking into account available information such as market conditions and internally approved pricing guidelines related to performance obligations. Recently Adopted Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB), issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09 or ASC 606), requiring an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASC 606 supersedes nearly all existing revenue recognition guidance under U.S. GAAP upon its effective date. The standard permits two methods of adoptions: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of applying the standard recognized at the date of application (cumulative catch-up transition method). We adopted the standard using the full retrospective method beginning February 1, 2018, for the year ending January 31, 2019, and our historical financial information for the years ended January 31, 2017 and 2018 has been adjusted to conform to the new standard. The most significant impact of the standard related to the removal of limitation on contingent revenue, resulting in an increase in product revenue and a decrease in support subscription revenue. In addition, the adoption of ASC 606 also resulted in differences in the timing of recognition of sales commissions. While the adoption of the standard changes certain line items within the net cash flow from operating activities, it had no impact to the net cash provided by or used in operating, investing, or financing activities on our condensed consolidated statements of cash flows. The following line items on our condensed consolidated balance sheet as of January 31, 2018 have been adjusted to reflect the adoption of ASC 606 (in thousands): As of January 31, 2018 As Previously Reported Adjustment As Adjusted Assets Deferred commissions, current $ 22,437 $ (1,349 ) $ 21,088 Deferred commissions, non-current 20,288 45,937 66,225 Total deferred commissions $ 42,725 $ 44,588 $ 87,313 Liabilities Deferred revenue, current $ 209,377 $ (18,148 ) $ 191,229 Deferred revenue, non-current 196,632 (13,759 ) 182,873 Total deferred revenue $ 406,009 $ (31,907 ) $ 374,102 Stockholders' equity Accumulated deficit $ (980,082 ) $ 76,495 $ (903,587 ) The following line items on our unaudited condensed consolidated statement of operations for the three months ended April 30, 2017 have been adjusted to reflect the adoption of ASC 606 (in thousands, except per share data): Three Months Ended As Previously Reported Adjustment As Adjusted Revenue: Product $ 138,425 $ 4,425 $ 142,850 Support subscription 44,206 (4,411 ) 39,795 Total revenue $ 182,631 $ 14 $ 182,645 Gross profit $ 119,083 $ 14 $ 119,097 Sales and marketing $ 96,964 $ (5,201 ) $ 91,763 Total operating expenses $ 182,488 $ (5,201 ) $ 177,287 Loss from operations $ (63,405 ) $ 5,215 $ (58,190 ) Loss before provision for income taxes $ (61,410 ) $ 5,215 $ (56,195 ) Net loss $ (62,374 ) $ 5,215 $ (57,159 ) Net loss per share attributable to common stockholders, basic and diluted $ (0.30 ) $ 0.02 $ (0.28 ) Unaudited revenue by geographic location based on bill-to location, which reflects the adoption impact of ASC 606, are as follows (in thousands): Three Months Ended As Previously Reported Adjustment As Adjusted Revenue: United States $ 146,494 $ 11 $ 146,505 Rest of the world 36,137 3 36,140 Total revenue $ 182,631 $ 14 $ 182,645 In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. We adopted ASU 2016-18 effective February 1, 2018 on a retrospective basis. Upon adoption, restricted cash are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this standard did not impact our net cash flow from operating activities or financing activities presented on our consolidated statements of cash flows. The following line items in our unaudited condensed consolidated statement of cash flows for the three months ended April 30, 2017 have been adjusted to reflect the adoption of ASU 2016-18 and ASC 606 (in thousands): Three Months Ended As Previously Reported Adjustment As Adjusted Net loss (1) $ (62,374 ) $ 5,215 $ (57,159 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Deferred commissions (1) $ (362 ) $ (1,005 ) $ (1,367 ) Accrued compensation and other liabilities (1) $ (19,998 ) $ (4,196 ) $ (24,194 ) Deferred revenue (1) $ 8,398 $ (14 ) $ 8,384 Cash used in operating activities $ (14,301 ) $ — $ (14,301 ) Cash, cash equivalents and restricted cash, beginning of period (2) $ 183,675 $ 12,734 $ 196,409 Cash, cash equivalents and restricted cash, end of period (2) $ 168,757 $ 12,734 $ 181,491 _____________________________________________________ (1) Adjustment pertaining to the adoption of ASC 606. (2) Adjustment pertaining to the adoption of ASU 2016-18. Recent Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize all leases with terms in excess of one year on their balance sheet as a right-of-use asset and a lease liability at the commencement date. The new standard also simplifies the accounting for sale and leaseback transactions. The amendments in this update will be effective for us beginning on February 1, 2019 and must be adopted using a modified retrospective method for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities to require that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statements of operations. The amendments in this update will be effective for us beginning on February 1, 2020 with early adoption permitted on or after February 1, 2019. We are currently evaluating the impact of this standard on our consolidated financial statements. In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and requires certain disclosures about stranded tax effects. This standard will be effective for us beginning February 1, 2019 and should be applied either in the period of adoption or retrospectively. Early adoption is permitted. We do not expect this standard to have any impact on our consolidated financial statements. |