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Form 10-Q Pure Storage, Inc. For: May 08

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June 16, 2022 6:06 AM EDT
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q

(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 8, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to   
Commission File Number: 001-37570
Pure Storage, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware27-1069557
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
650 Castro Street, Suite 400
Mountain View, California 94041
(Address of principal executive offices, including zip code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per sharePSTGNew York Stock Exchange LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x     No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x     No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerx Accelerated filer☐
Non-accelerated 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

As of June 8, 2022, the registrant had 296,021,678 shares of its Class A common stock outstanding.

PURE STORAGE, INC.
FORM 10-Q for the Quarter Ended May 8, 2022
Table of Contents
 
  Page
 
PART I.
 
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II. 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


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, our shift to subscription services, including as-a-Service offerings, our expectations regarding fluctuations in our revenue and operating results, including the timing and magnitude of large customer orders, 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, the potential disruptions to our contract manufacturers or supply chain, our expectations regarding inflation, our expectations concerning relationships with third parties, including our partners, customers, suppliers and contract manufacturers, the success of acquired technologies, 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 restrictions and its impact on our business, operating results, cash flows and/or financial condition.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors.” These risks are not exhaustive. Other sections of this report include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
Investors should not rely upon forward-looking statements as predictions of future events. We cannot assure investors that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
PURE STORAGE, INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share data, unaudited)
At the End of
 Fiscal 2022
First Quarter of Fiscal 2023
ASSETS  
Current assets:  
Cash and cash equivalents$466,199 $455,237 
Marketable securities947,073 836,725 
Accounts receivable, net of allowance of $945 and $1,030
542,144 345,933 
Inventory38,942 41,301 
Deferred commissions, current81,589 67,448 
Prepaid expenses and other current assets116,232 127,967 
Total current assets2,192,179 1,874,611 
Property and equipment, net195,282 207,289 
Operating lease right-of-use assets111,763 112,926 
Deferred commissions, non-current164,718 163,550 
Intangible assets, net62,646 58,595 
Goodwill358,736 358,736 
Restricted cash10,544 10,544 
Other assets, non-current39,447 42,101 
Total assets$3,135,315 $2,828,352 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$70,704 $58,668 
Accrued compensation and benefits205,431 111,131 
Accrued expenses and other liabilities78,511 84,292 
Operating lease liabilities, current35,098 37,370 
Deferred revenue, current562,576 577,348 
Debt, current— 572,556 
Total current liabilities952,320 1,441,365 
Long-term debt786,779 — 
Operating lease liabilities, non-current93,479 91,639 
Deferred revenue, non-current517,296 535,125 
Other liabilities, non-current31,105 33,129 
Total liabilities2,380,979 2,101,258 
Commitments and contingencies (Note 7)
Stockholders’ equity:  
Preferred stock, par value of $0.0001 per share— 20,000 shares authorized; no shares issued and outstanding
— — 
Class A and Class B common stock, par value of $0.0001 per share— 2,250,000 (Class A 2,000,000, Class B 250,000) shares authorized; 292,633 and 297,132 Class A shares issued and outstanding
29 30 
Additional paid-in capital2,470,943 2,367,577 
Accumulated other comprehensive loss(8,365)(18,845)
Accumulated deficit(1,708,271)(1,621,668)
Total stockholders’ equity754,336 727,094 
Total liabilities and stockholders’ equity$3,135,315 $2,828,352 
 
See the accompanying notes to condensed consolidated financial statements.
1

PURE STORAGE, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data, unaudited)
 
First Quarter of Fiscal
 20222023
Revenue:  
Product$249,888 $401,161 
Subscription services162,819 219,244 
Total revenue412,707 620,405 
Cost of revenue:  
Product79,064 125,484 
Subscription services51,777 68,495 
Total cost of revenue130,841 193,979 
Gross profit281,866 426,426 
Operating expenses:  
Research and development131,381 161,273 
Sales and marketing183,496 218,153 
General and administrative43,146 51,567 
Total operating expenses358,023 430,993 
Loss from operations(76,157)(4,567)
Other income (expense), net(4,727)(6,181)
Loss before provision for income taxes(80,884)(10,748)
Provision for income taxes3,322 787 
Net loss$(84,206)$(11,535)
Net loss per share attributable to common stockholders, basic and diluted$(0.30)$(0.04)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted280,331 295,843 

 
See the accompanying notes to condensed consolidated financial statements.
2
PURE STORAGE, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands, unaudited)

 
First Quarter of Fiscal
 20222023
Net loss$(84,206)$(11,535)
Other comprehensive loss:  
Unrealized net losses on available-for-sale securities
(2,219)(10,487)
Less: reclassification adjustment for net (gains) losses on available-for-sale securities included in net loss(423)7 
Change in unrealized net losses on available-for-sale securities(2,642)(10,480)
Comprehensive loss$(86,848)$(22,015)


 See the accompanying notes to condensed consolidated financial statements.
3
PURE STORAGE, INC.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, unaudited)
First Quarter of Fiscal 2022
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance at the end of fiscal 2021278,363 $28 $2,307,580 $7,410 $(1,565,012)$750,006 
Issuance of common stock upon exercise of stock options1,331 — 7,895 — — 7,895 
Stock-based compensation expense— — 61,764 — — 61,764 
Vesting of restricted stock units3,082 — — — — — 
Tax withholding on vesting of equity awards(226)— (5,050)— — (5,050)
Common stock issued under employee stock purchase plan2,185 — 17,726 — — 17,726 
Repurchases of common stock(1,383)— (30,020)— — (30,020)
Other comprehensive loss— — — (2,642)— (2,642)
Net loss— — — — (84,206)(84,206)
Balance at the end of the first quarter of fiscal 2022
283,352 $28 $2,359,895 $4,768 $(1,649,218)$715,473 

First Quarter of Fiscal 2023
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance at the end of fiscal 2022292,633 $29 $2,470,943 $(8,365)$(1,708,271)$754,336 
Cumulative-effect adjustment from adoption of ASU 2020-06
— — (133,265)— 98,138 (35,127)
Issuance of common stock upon exercise of stock options1,233 — 11,433 — — 11,433 
Stock-based compensation expense— — 75,685 — — 75,685 
Vesting of restricted stock units3,608 1 (1)— — — 
Tax withholding on vesting of equity awards(295)— (10,194)— — (10,194)
Common stock issued under employee stock purchase plan2,087 — 19,396 — — 19,396 
Repurchases of common stock(2,134)— (66,420)— — (66,420)
Other comprehensive loss— — — (10,480)— (10,480)
Net loss— — — — (11,535)(11,535)
Balance at the end of the first quarter of fiscal 2023
297,132 $30 $2,367,577 $(18,845)$(1,621,668)$727,094 

See the accompanying notes to condensed consolidated financial statements.
4
PURE STORAGE, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)

 First Quarter of Fiscal
 20222023
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss$(84,206)$(11,535)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization18,826 22,663 
Amortization of debt discount and debt issuance costs7,403 801 
Stock-based compensation expense61,334 74,571 
Other2,621 146 
Changes in operating assets and liabilities:
Accounts receivable, net133,380 196,129 
Inventory(3,508)(1,699)
Deferred commissions2,049 15,309 
Prepaid expenses and other assets(30,407)(11,742)
Operating lease right-of-use assets7,581 7,749 
Accounts payable(24,354)(7,419)
Accrued compensation and other liabilities(84,837)(88,963)
Operating lease liabilities(6,897)(8,480)
Deferred revenue22,463 32,602 
Net cash provided by operating activities21,448 220,132 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment(27,829)(32,810)
Purchases of marketable securities(171,563)(17,251)
Sales of marketable securities85,537 — 
Maturities of marketable securities65,740 116,175 
Net cash (used in) provided by investing activities(48,115)66,114 
CASH FLOWS FROM FINANCING ACTIVITIES
  Net proceeds from exercise of stock options8,016 11,405 
  Proceeds from issuance of common stock under employee stock purchase plan17,726 19,396 
  Principal payments on borrowings and finance lease obligations(344)(251,395)
  Tax withholding on vesting of equity awards(5,050)(10,194)
  Repurchases of common stock(30,020)(66,420)
Net cash used in financing activities(9,672)(297,208)
Net decrease in cash, cash equivalents and restricted cash(36,339)(10,962)
Cash, cash equivalents and restricted cash, beginning of period347,691 476,743 
Cash, cash equivalents and restricted cash, end of period$311,352 $465,781 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD
Cash and cash equivalents$300,808 $455,237 
Restricted cash10,544 10,544 
Cash, cash equivalents and restricted cash, end of period$311,352 $465,781 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest$1,455 $715 
Cash paid for income taxes$3,750 $1,848 
Cash paid for amounts included in the measurement of operating lease liabilities$8,820 $11,924 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION 
Property and equipment purchased but not yet paid$8,366 $6,413 
Operating lease right-of-use assets obtained in exchange for operating lease liabilities$2,495 $8,912 

See the accompanying notes to condensed consolidated financial statements.
5

PURE STORAGE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Business Overview
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.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
We operate using a 52/53 week fiscal year ending on the first Sunday after January 30, which for fiscal 2022 was February 6, 2022 and for fiscal 2023 will be February 5, 2023. The first quarter of fiscal 2022 and 2023 ended on May 2, 2021 and May 8, 2022. Unless otherwise stated, all dates refer to our fiscal year and fiscal quarters.
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.
There were no material changes in the first quarter of fiscal 2023 to our significant accounting policies as described in our Annual Report on Form 10-K for fiscal 2022.
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 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 2022.
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 2023 or any future period.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ from these estimates and assumptions due to risks and uncertainties. Such estimates include, but are not limited to, the determination of standalone selling price for revenue arrangements with multiple performance obligations when the price at which the performance obligation sold separately or observable past transactions are not available, useful lives of intangible assets and property and equipment, the period of benefit for deferred contract costs for commissions, stock-based compensation, provision for income taxes including related reserves, fair value of equity assumed, intangible and tangible assets acquired and liabilities assumed for business combinations. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
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 2022 and the first quarter of fiscal 2023, we had restricted cash of $10.5 million.
6

PURE STORAGE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Recently Adopted Accounting Pronouncement
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 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 requires the use of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS) which results in the inclusion of the effect of share settlement for instruments that may be settled in cash or shares. We adopted the standard as of February 7, 2022 using the modified retrospective basis. Adoption resulted in an adjustment of $133.3 million to reclassify the remaining balance of the conversion feature recorded in additional paid-in capital to convertible senior notes (the Notes) of $35.2 million and accumulated deficit of $98.1 million on the condensed consolidated balance sheet. Accordingly, we no longer carry an equity component of the Notes. There was no impact to diluted EPS as the inclusion of potential shares of common stock related to the Notes was anti-dilutive. For further information, see Note 6, Debt, and Note 11, Net Loss per Share Attributable to Common Stockholders.
Note 3. Financial Instruments
Fair Value Measurements
We define fair value as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Three levels of inputs may be used to measure fair value:
•Level 1 - Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;
•Level 2 - Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments; and
•Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on our own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.
Cash Equivalents, Marketable Securities and Restricted Cash
We measure our cash equivalents, marketable securities, and restricted cash at fair value on a recurring basis. We classify our cash equivalents, marketable securities and restricted cash within Level 1 or Level 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded. Our fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of our marketable securities were derived from non-binding market consensus prices that are corroborated by observable market data or quoted market prices for similar instruments. The following tables summarize our cash equivalents, marketable securities and restricted cash by significant investment categories and their classification within the valuation hierarchy at the end of fiscal 2022 and the first quarter of fiscal 2023 (in thousands):
7

PURE STORAGE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
 At the End of Fiscal 2022
 Amortized
Cost		Gross Unrealized
Gains		Gross Unrealized
Losses		Fair
Value		Cash EquivalentsMarketable SecuritiesRestricted Cash
Level 1      
Money market accounts$— $— $— $29,275 $18,731 $— $10,544 
Level 2      
U.S. government treasury notes336,303 512 (2,176)334,639 — 334,639 — 
U.S. government agencies49,153 49 (193)49,009 — 49,009 — 
Corporate debt securities491,728 384 (4,731)487,381 200 487,181 — 
Foreign government bonds12,333 37 (17)12,353 — 12,353 — 
Asset-backed securities60,361 111 (453)60,019 — 60,019 — 
Municipal bonds3,950 — (78)3,872 — 3,872 — 
Total$953,828 $1,093 $(7,648)$976,548 $18,931 $947,073 $10,544 


 
At the End of the First Quarter of Fiscal 2023
 Amortized
Cost		Gross Unrealized
Gains		Gross Unrealized
Losses		Fair
Value		Cash EquivalentsMarketable
Securities		Restricted Cash
Level 1
Money market accounts$— $— $— $121,080 $110,536 $— $10,544 
Level 2       
U.S. government treasury notes298,420 86 (4,491)294,015 10,660 283,355 — 
U.S. government agencies41,783 12 (389)41,406 — 41,406 — 
Corporate debt securities460,182 15 (11,019)449,178 — 449,178 — 
Foreign government bonds8,304 2 (51)8,255 — 8,255 — 
Asset-backed securities51,781 17 (1,053)50,745 — 50,745 — 
Municipal bonds3,950 — (164)3,786 — 3,786 — 
Total$864,420 $132 $(17,167)$968,465 $121,196 $836,725 $10,544 
 
8

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 2023
 Amortized CostFair Value
Due within one year$376,161 $374,085 
Due in one to five years476,309 461,426 
Due in five to ten years1,290 1,214 
Total$853,760 $836,725 
 
Unrealized losses on our debt securities have not been recorded into income because we do not intend to sell nor is it more likely than not that we will be required to sell these investments prior to recovery of their amortized cost basis. The decline in fair value of our debt securities is largely due to the rising interest rate environment driven by current market conditions that has resulted in higher credit spreads. The credit ratings associated with our debt securities are mostly unchanged, are highly rated and the issuers continue to make timely principal and interest payments. As a result, there were no credit or non-credit impairment charges recorded in the first quarter of fiscal 2022 and 2023.
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 2022 and the first quarter of fiscal 2023, aggregated by investment category (in thousands):
At the End of Fiscal 2022
Less than 12 monthsGreater than 12 monthsTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
U.S. government treasury notes$193,359 $(2,176)$— $— $193,359 $(2,176)
U.S. government agencies24,388 (193)— — 24,388 (193)
Corporate debt securities374,223 (4,708)1,182 (23)375,405 (4,731)
Foreign government bonds4,098 (17)— — 4,098 (17)
Asset-backed securities37,608 (453)— — 37,608 (453)
Municipal bonds3,872 (78)— — 3,872 (78)
Total$637,548 $(7,625)$1,182 $(23)$638,730 $(7,648)

At the End of the First Quarter of Fiscal 2023
 Less than 12 monthsGreater than 12 monthsTotal
 Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
U.S. government treasury notes$190,579 $(4,381)$3,488 $(110)$194,067 $(4,491)
U.S. government agencies29,394 (389)— — 29,394 (389)
Corporate debt securities424,652 (10,555)13,368 (464)438,020 (11,019)
Foreign government bonds3,743 (51)— — 3,743 (51)
Asset-backed securities35,011 (1,053)— — 35,011 (1,053)
Municipal bonds3,786 (164)— — 3,786 (164)
Total$687,165 $(16,593)$16,856 $(574)$704,021 $(17,167)
 
Realized gains or losses on sale of marketable securities were not significant for all periods presented.
9

PURE STORAGE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Fair Value Measurements of Other Financial Instruments
We measure the fair value of our 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 2023 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 2023.
Note 4. Balance Sheet Components
Inventory
Inventory consists of the following (in thousands):
At the End of
Fiscal 2022
First Quarter of Fiscal 2023
Raw materials$15,734 $17,366 
Finished goods23,208 23,935 
Inventory$38,942 $41,301 
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
 
At the End of
 Fiscal 2022
First Quarter of Fiscal 2023
Test equipment$266,672 $281,577 
Computer equipment and software206,053 213,616 
Furniture and fixtures8,652 8,504 
Leasehold improvements47,443 48,431 
Capitalized software development costs8,528 12,020 
Total property and equipment537,348 564,148 
Less: accumulated depreciation and amortization(342,066)(356,859)
Property and equipment, net$195,282 $207,289 

Depreciation and amortization expense related to property and equipment was $14.5 million and $19.3 million for the first quarter of fiscal 2022 and 2023.
10

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 2022
First Quarter of Fiscal 2023
Gross Carrying ValueAccumulated AmortizationNet Carrying AmountGross Carrying ValueAccumulated AmortizationNet Carrying Amount
Technology patents$19,125 $(13,544)$5,581 $19,125 $(13,864)$5,261 
Developed technology80,166 (30,304)49,862 80,166 (33,504)46,662 
Customer relationships6,459 (1,246)5,213 6,459 (1,476)4,983 
Trade name3,623 (1,633)1,990 3,623 (1,934)1,689 
Intangible assets, net$109,373 $(46,727)$62,646 $109,373 $(50,778)$58,595 
 
 Intangible assets amortization expense was $4.3 million and $4.1 million for the first quarter of fiscal 2022 and 2023. At the end of the first quarter of fiscal 2023, the weighted-average remaining amortization period was 1.9 years for technology patents, 3.7 years for developed technology, 5.4 years for customer relationships, and 1.4 years for trade name. We recorded amortization of technology patents in general and administrative expenses due to their defensive nature, developed technology in cost of product revenue, and customer relationships and trade name in sales and marketing expenses in the condensed consolidated statements of operations.
At the end of the first quarter of fiscal 2023, future expected amortization expense for intangible assets is as follows (in thousands):
Fiscal Years EndingEstimated Future
Amortization Expense
Remainder of 2023$12,146 
202415,776 
202514,991 
202612,396 
20272,673 
Thereafter613 
Total$58,595 
Goodwill
As of the end of fiscal 2022 and the first quarter of fiscal 2023, goodwill was $358.7 million. There were no impairments to goodwill during the first quarter of fiscal 2022 and 2023.
11

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 2022
First Quarter of Fiscal 2023
Taxes payable $6,312 $5,477 
Accrued marketing13,257 7,966 
Accrued cloud and outside services6,135 7,300 
Supply chain-related accruals6,991 11,509 
Accrued service logistics and professional services6,244 6,444 
Acquisition earn-out5,211 6,958 
Customer deposits from contracts with customers10,409 9,699 
Other accrued liabilities23,952 28,939 
Total accrued expenses and other liabilities$78,511 $84,292 

12

PURE STORAGE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 5. Deferred Revenue and Commissions
Deferred Commissions
Deferred commissions consist of incremental costs paid to our sales force to obtain customer contracts.
Changes in total deferred commissions during the periods presented are as follows (in thousands):
First Quarter of Fiscal
20222023
Beginning balance
$187,924 $246,307 
Additions29,189 26,484 
Recognition of deferred commissions(31,238)(41,793)
Ending balance$185,875 $230,998 
Of the $231.0 million total deferred commissions balance at the end of the first quarter of fiscal 2023, we expect to recognize approximately 29% as commission expense over the next 12 months and the remainder thereafter.
There was no impairment related to capitalized commissions for the first quarter of fiscal 2022 and 2023.
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.
Changes in total deferred revenue during the periods presented are as follows (in thousands):
First Quarter of Fiscal
20222023
Beginning balance
$843,697 $1,079,872 
Additions186,851 244,580 
Recognition of deferred revenue(164,388)(211,979)
Ending balance$866,160 $1,112,473 
Revenue recognized during the first quarter of fiscal 2022 and 2023 from deferred revenue at the beginning of each respective period was $145.1 million and $197.1 million.
Remaining Performance Obligations
Total remaining performance obligations (RPO) which is contracted but not recognized revenue was $1.4 billion at the end of the first quarter of fiscal 2023. RPO consists of both deferred revenue and non-cancelable amounts that are expected to be invoiced and recognized as revenue in future periods. Product orders are generally cancelable until delivery has occurred, and as such unfulfilled product orders are excluded from RPO. Of the $1.4 billion contracted but not recognized revenue at the end of the first quarter of fiscal 2023, we expect to recognize approximately 47% over the next 12 months, and the remainder thereafter.
13

PURE STORAGE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 6. 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.
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, 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 five business day period after any five consecutive trading day period (the measurement period), in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the Notes on each such trading day;

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

•upon the occurrence of specified corporate events.
On or after October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time regardless of the foregoing circumstances. Upon conversion, holders will receive cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. We intend to settle the principal of the Notes in cash.
The conversion price will be subject to adjustment in some events. Following certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, we will increase the conversion rate for a holder who elects to convert its Notes in connection with such corporate event or during the related redemption period in certain circumstances. Additionally, upon the occurrence of a corporate event that constitutes a “fundamental change” per the Indenture, holders of the Notes may require us to repurchase for cash all or a portion of the Notes at a purchase price equal to 100% of the principal amount of the Notes plus accrued and unpaid contingent interest.

14

PURE STORAGE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Subsequent to April 19, 2021, we may redeem for cash all or any portion of the Notes, at our option, 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 two 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.
As described in Note 2, we adopted ASU 2020-06 effective February 7, 2022 using the modified retrospective method, under which financial results reported in prior periods were not adjusted. Prior to the adoption of this standard, 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 debt instrument that does not have an associated conversion 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 and determined to be $136.3 million. This amount was recorded in additional paid-in capital with the offset representing a debt discount that was amortized to interest expense over the term of the Notes using the effective interest method. Total debt issuance costs incurred of $12.9 million were allocated to the liability and equity components based on their relative carrying amounts, of which $9.8 million was allocated to the liability component as a reduction to the Notes and $3.1 million was allocated to the equity component of the Notes as a reduction to additional paid-in capital. The issuance costs attributable to the liability component is also being amortized to interest method over the term of the Notes using the effective interest method. Upon adoption of ASU 2020-06, we combined the liability and equity components assuming that the instrument was accounted for as a single liability from inception to the date of adoption, resulting in the elimination of the debt discount. Similarly, we combined the liability and equity components of the debt issuance costs, the result of which is presented as a reduction to the Notes. After the adoption of ASU 2020-06, the carrying amount of the Notes was $572.6 million as of the end of the first quarter of fiscal 2023, with principal of $575.0 million, net of debt issuance costs of $2.4 million. The debt issuance costs are being amortized to interest expense using the effective interest method over the remaining term of the Notes.
The Notes consisted of the following (in thousands):
At the End of
Fiscal 2022
First Quarter of Fiscal 2023
Liability:
Principal$575,000 $