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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2018
OR
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-37883
NUTANIX, INC.
(Exact name of registrant as specified in its charter)
|
| | |
Delaware | | 27-0989767 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
1740 Technology Drive, Suite 150 San Jose, CA 95110 |
(Address of principal executive offices, including zip code) |
(408) 216-8360 |
(Registrant's telephone number, including area code) |
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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
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. (Check one):
|
| | | | | |
Large accelerated filer | | o | Accelerated filer | | o |
Non-accelerated filer | | o (Do not check if a smaller reporting company) | Smaller reporting company | | o |
Emerging growth company | | x | 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 Securities Exchange Act). Yes o No x
As of May 31, 2018, the registrant had 132,472,453 shares of Class A common stock, $0.000025 par value per share, and 38,206,910 shares of Class B common stock, $0.000025 par value per share, outstanding.
TABLE OF CONTENTS
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| Item 5 | | |
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SPECIAL NOTE REGARDING 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 ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), which statements involve substantial risks and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "plan," "intend," "could," "would," "expect," and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. Forward-looking statements included in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding:
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• | our future revenue, cost of revenue and operating expenses, as well as changes in the cost of product revenue, component costs, product gross margins and support, entitlements and other services revenue, and changes in research and development, sales and marketing and general and administrative expenses; |
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• | our business plan and our ability to effectively manage our growth; |
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• | anticipated trends, growth rates and challenges in our business and in the markets in which we operate, including the productivity of our sales team; |
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• | our ability to develop new solutions, product features and technology, such as Nutanix Xi Cloud Services, and bring them to market in a timely manner; |
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• | market acceptance of new technology and recently introduced solutions; |
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• | the interoperability and availability of our solutions with and on third-party hardware platforms; |
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• | our plans and objectives for future operations, including plans to continue to invest in our global engineering, research and development, and sales and marketing teams, and the impact of such investments on our operations; |
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• | our ability to increase sales of our solutions; |
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• | our ability to attract new end customers, and retain and grow sales from our existing end customers; |
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• | our ability to maintain and strengthen our relationships with our channel and OEM partners; |
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• | the effects of seasonal trends on our results of operations; |
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• | our expectations concerning relationships with third parties, including our ability to compress and stabilize sales cycles; |
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• | our ability to maintain, protect and enhance our intellectual property; |
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• | our ability to continue to expand internationally; |
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• | the effects of increased competition in our market and our ability to compete effectively; |
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• | anticipated capital expenditures; |
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• | future acquisitions or investments in complementary companies, products, services or technologies and the ability to successfully integrate completed acquisitions; |
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• | our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business both in the United States and internationally; |
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• | economic and industry trends, projected growth or trend analysis; |
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• | the attraction and retention of qualified employees and key personnel; |
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• | our expectations concerning future shifts in the mix of whether our solutions are sold as an appliance or as software-only, and in the mix of the types of appliances we sell; and |
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• | sufficiency of cash to meet cash needs for at least the next 12 months. |
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, 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 materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. The forward-looking statements in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update, revise or publicly release the results of any revision to these forward-looking statements to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed on our forward-looking statements and you should not place undue reliance on our forward-looking statements.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
NUTANIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
| | | | | | | |
| As of |
| July 31, 2017 *As Adjusted | | April 30, 2018 |
| (in thousands, except share and per share data) |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 138,359 |
| | $ | 376,789 |
|
Short-term investments | 210,694 |
| | 546,675 |
|
Accounts receivable, net | 178,876 |
| | 194,323 |
|
Deferred commissions—current | 23,843 |
| | 30,274 |
|
Prepaid expenses and other current assets | 28,362 |
| | 36,615 |
|
Total current assets | 580,134 |
| | 1,184,676 |
|
Property and equipment, net | 58,072 |
| | 76,322 |
|
Deferred commissions—non-current | 49,684 |
| | 72,454 |
|
Intangible assets, net | 26,001 |
| | 47,790 |
|
Goodwill | 16,672 |
| | 88,324 |
|
Other assets—non-current | 7,649 |
| | 5,832 |
|
Total assets | $ | 738,212 |
| | $ | 1,475,398 |
|
| | | |
Liabilities and Stockholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 73,725 |
| | $ | 71,405 |
|
Accrued compensation and benefits | 57,521 |
| | 61,221 |
|
Accrued expenses and other current liabilities | 9,707 |
| | 11,645 |
|
Deferred revenue—current | 170,123 |
| | 243,770 |
|
Total current liabilities | 311,076 |
|
| 388,041 |
|
Deferred revenue—non-current | 198,933 |
| | 296,119 |
|
Convertible senior notes, net | — |
| | 422,567 |
|
Other liabilities—non-current | 11,140 |
| | 14,090 |
|
Total liabilities | 521,149 |
|
| 1,120,817 |
|
Commitments and contingencies (Note 7) |
| |
|
Stockholders’ equity: | | | |
Preferred stock, par value of $0.000025 per share— 200,000,000 shares authorized as of July 31, 2017 and April 30, 2018; no shares issued and outstanding as of July 31, 2017 and April 30, 2018 | — |
| | — |
|
Common stock, par value of $0.000025 per share—1,200,000,000 (1,000,000,000 Class A, 200,000,000 Class B) shares authorized as of July 31, 2017 and April 30, 2018; 154,636,520 (93,570,171 Class A and 61,066,349 Class B) and 170,282,321 (132,152,095 Class A and 38,130,226 Class B) shares issued and outstanding as of July 31, 2017 and April 30, 2018 | 4 |
| | 4 |
|
Additional paid-in capital | 948,134 |
| | 1,296,575 |
|
Accumulated other comprehensive loss | (106 | ) | | (1,237 | ) |
Accumulated deficit | (730,969 | ) | | (940,761 | ) |
Total stockholders’ equity | 217,063 |
|
| 354,581 |
|
Total liabilities and stockholders’ equity | $ | 738,212 |
|
| $ | 1,475,398 |
|
*
See the accompanying notes to condensed consolidated financial statements.
NUTANIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) |
| | | | | | | | | | | | | | | |
| Three Months Ended April 30, | | Nine Months Ended April 30, |
| 2017 *As Adjusted | | 2018 | | 2017 *As Adjusted | | 2018 |
| (in thousands, except share and per share data) |
Revenue: | | | | | | | |
Product | $ | 160,076 |
| | $ | 221,117 |
| | $ | 471,825 |
| | $ | 663,339 |
|
Support, entitlements and other services | 45,594 |
| | 68,296 |
| | 121,620 |
| | 188,370 |
|
Total revenue | 205,670 |
| | 289,413 |
| | 593,445 |
| | 851,709 |
|
Cost of revenue: | | | | | | | |
Product | 62,593 |
| | 66,680 |
| | 173,206 |
| | 235,059 |
|
Support, entitlements and other services | 20,613 |
| | 28,935 |
| | 56,608 |
| | 77,706 |
|
Total cost of revenue | 83,206 |
| | 95,615 |
| | 229,814 |
| | 312,765 |
|
Gross profit | 122,464 |
| | 193,798 |
|
| 363,631 |
|
| 538,944 |
|
Operating expenses: | | | | | | | |
Sales and marketing | 126,746 |
| | 169,860 |
| | 366,745 |
| | 466,466 |
|
Research and development | 74,607 |
| | 81,291 |
| | 220,802 |
| | 216,727 |
|
General and administrative | 15,610 |
| | 24,929 |
| | 60,463 |
| | 56,929 |
|
Total operating expenses | 216,963 |
| | 276,080 |
|
| 648,010 |
|
| 740,122 |
|
Loss from operations | (94,499 | ) | | (82,282 | ) |
| (284,379 | ) |
| (201,178 | ) |
Other income (expense), net | 303 |
| | (4,235 | ) | | (25,830 | ) | | (5,285 | ) |
Loss before provision for income taxes | (94,196 | ) | | (86,517 | ) |
| (310,209 | ) |
| (206,463 | ) |
Provision for (benefit from) income taxes | 2,639 |
| | (843 | ) | | 3,297 |
| | 3,329 |
|
Net loss | $ | (96,835 | ) | | $ | (85,674 | ) |
| $ | (313,506 | ) |
| $ | (209,792 | ) |
Net loss per share attributable to Class A and Class B common stockholders—basic and diluted | $ | (0.67 | ) | | $ | (0.51 | ) |
| $ | (2.62 | ) |
| $ | (1.30 | ) |
Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders—basic and diluted | 144,054,432 |
| | 166,845,544 |
| | 119,851,586 |
| | 161,709,365 |
|
*
See the accompanying notes to condensed consolidated financial statements.
NUTANIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended April 30, | | Nine Months Ended April 30, |
| 2017 *As Adjusted | | 2018 | | 2017 *As Adjusted | | 2018 |
| (in thousands) |
Net loss | $ | (96,835 | ) | | $ | (85,674 | ) | | $ | (313,506 | ) | | $ | (209,792 | ) |
Other comprehensive loss, net of tax: | | | | | | | |
Change in unrealized gain (loss) on available-for-sale securities, net of tax | 74 |
| | (517 | ) | | (84 | ) | | (1,131 | ) |
Comprehensive loss | $ | (96,761 | ) | | $ | (86,191 | ) | | $ | (313,590 | ) | | $ | (210,923 | ) |
*
See the accompanying notes to condensed consolidated financial statements.
NUTANIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) |
| | | | | | | |
| Nine Months Ended April 30, |
| 2017 *As Adjusted | | 2018 |
| (in thousands) |
Cash flows from operating activities: | | | |
Net loss | $ | (313,506 | ) | | $ | (209,792 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization | 27,934 |
| | 36,013 |
|
Stock-based compensation | 193,686 |
| | 122,472 |
|
Loss on debt extinguishment | 3,320 |
| | — |
|
Change in fair value of convertible preferred stock warrant liability | 21,133 |
| | — |
|
Change in fair value of contingent consideration | 176 |
| | (3,371 | ) |
Amortization of debt discount and issuance cost | — |
| | 7,654 |
|
Other | 601 |
| | (186 | ) |
Changes in operating assets and liabilities: | | | |
Accounts receivable, net | (58,841 | ) | | (15,307 | ) |
Deferred commissions | (14,688 | ) | | (29,201 | ) |
Prepaid expenses and other assets | (29,628 | ) | | (5,327 | ) |
Accounts payable | 32,468 |
| | (6,407 | ) |
Accrued compensation and benefits | 32,000 |
| | 3,700 |
|
Accrued expenses and other liabilities | 5,399 |
| | (1,147 | ) |
Deferred revenue | 107,849 |
| | 170,709 |
|
Net cash provided by operating activities | 7,903 |
| | 69,810 |
|
Cash flows from investing activities: | | | |
Purchases of property and equipment | (37,797 | ) | | (46,089 | ) |
Purchases of investments | (156,420 | ) | | (485,777 | ) |
Maturities of investments | 59,542 |
| | 147,868 |
|
Sales of investments | 32,640 |
| | — |
|
Payments for business combinations, net of cash acquired | (184 | ) | | (22,792 | ) |
Net cash used in investing activities | (102,219 | ) | | (406,790 | ) |
Cash flows from financing activities: | | | |
Proceeds from issuance of convertible senior notes, net | — |
| | 563,937 |
|
Proceeds from issuance of warrants | — |
| | 87,975 |
|
Payments for convertible note hedges | — |
| | (143,175 | ) |
Proceeds from sales of shares through employee equity incentive plans, net of repurchases | 26,662 |
| | 68,186 |
|
Proceeds from initial public offering, net of underwriting discounts and commissions | 254,455 |
| | — |
|
Payments of offering costs | (1,609 | ) | | (85 | ) |
Repayment of senior notes | (75,000 | ) | | — |
|
Debt extinguishment costs | (1,580 | ) | | — |
|
Payment of debt in conjunction with business combinations | (7,124 | ) | | (1,428 | ) |
Other | 77 |
| | — |
|
Net cash provided by financing activities | 195,881 |
| | 575,410 |
|
Net increase in cash and cash equivalents | 101,565 |
| | 238,430 |
|
Cash and cash equivalents—beginning of period | 99,209 |
| | 138,359 |
|
Cash and cash equivalents—end of period | $ | 200,774 |
| | $ | 376,789 |
|
Supplemental disclosures of cash flow information: | | | |
Cash paid for income taxes | $ | 3,559 |
| | $ | 8,038 |
|
Cash paid for interest | $ | 1,271 |
| | $ | — |
|
Supplemental disclosures of non-cash investing and financing information: | | | |
Issuance of common stock for business combinations | $ | 27,063 |
| | $ | 63,780 |
|
Purchases of property and equipment included in accounts payable and accrued liabilities | $ | 4,496 |
| | $ | 9,285 |
|
Vesting of early exercised stock options | $ | 1,293 |
| | $ | 570 |
|
Convertible senior notes offering costs included in accounts payable and accrued liabilities | $ | — |
| | $ | 425 |
|
Conversion of convertible preferred stock to common stock, net of issuance costs | $ | 310,379 |
| | $ | — |
|
Reclassification of convertible preferred stock warrant liability to additional paid-in capital | $ | 30,812 |
| | $ | — |
|
Offering costs included in accounts payable | $ | 51 |
| | $ | — |
|
*
See the accompanying notes to condensed consolidated financial statements.
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. OVERVIEW AND BASIS OF PRESENTATION
Organization and Description of Business
Nutanix, Inc. was incorporated in the state of Delaware in September 2009. Nutanix, Inc. is headquartered in San Jose, California, and together with its wholly-owned subsidiaries (collectively, "we," "us" or "our") has operations throughout North America, Europe, Asia-Pacific, the Middle East, Latin America, and Africa.
Our enterprise cloud operating system converges the traditional silos of server, virtualization, storage, and networking into one integrated solution and unifies private and public cloud into a single software fabric. We primarily sell our products and services to end customers through distributors, resellers and original equipment manufacturers ("OEMs") (collectively, "Partners").
Principles of Consolidation and Significant Accounting Policies
The accompanying condensed consolidated financial statements, which include the accounts of Nutanix, Inc. and our wholly-owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"), and, except for the impact of the adoption of the new accounting guidance related to revenue recognition, are consistent in all material respects with those included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2017, filed with the Securities and Exchange Commission ("SEC"), on September 18, 2017. All intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements are unaudited, but include all adjustments of a normal recurring nature necessary for a fair presentation of our quarterly results. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. These reclassifications had no impact on our previously reported net loss or accumulated deficit.
Effective August 1, 2017, we adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASC 606"), as discussed in detail in Note 3. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q have been updated to comply with ASC 606, as indicated by the "as adjusted" footnote. Certain prior period amounts have been adjusted as a result of our early adoption of ASC 606. Refer to "Summary of Significant Accounting Policies" and "Recent Accounting Pronouncements" below for more information.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended July 31, 2017.
Use of Estimates
The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such management estimates include, but are not limited to, the estimate of standalone selling prices for products and related support; determination of fair value of stock-based awards; accounting for income taxes, including the valuation reserve on deferred tax assets and uncertain tax positions; warranty liability; commissions expense; fair value of assets and liabilities acquired in business combinations; fair value of debt and equity components related to our convertible senior notes; and contingencies and litigation. Management evaluates these estimates and assumptions on an ongoing basis using historical experience and other factors and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could materially differ from those estimates and assumptions.
Concentration of Risk
Concentration of revenue and accounts receivable—We sell our products primarily through Partners and occasionally directly to end customers. For the three and nine months ended April 30, 2017 and 2018, no end customer accounted for 10% or more of total revenue.
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
For each significant Partner, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable, net are as follows:
|
| | | | | | | | | | | | | | | | | | |
| | Revenue | | Accounts Receivable as of |
| | Three Months Ended April 30, | | Nine Months Ended April 30, | |
Partners | | 2017 As Adjusted (2) | | 2018 | | 2017 As Adjusted (2) | | 2018 | | July 31, 2017 | | April 30, 2018 |
Partner A | | (1) |
| | (1) |
| | 10 | % | | 10 | % | | (1) |
| | (1) |
|
Partner B | | 18 | % | | 15 | % | | 18 | % | | 20 | % | | 12 | % | | (1) |
|
Partner C | | 18 | % | | 18 | % | | 16 | % | | 17 | % | | 14 | % | | 18 | % |
Partner D | | (1) |
| | (1) |
| | (1) |
| | 10 | % | | 20 | % | | 15 | % |
Partner E | | (1) |
| | (1) |
| | (1) |
| | (1) |
| | (1) |
| | (1) |
|
Partner F | | 17 | % | | 13 | % | | 14 | % | | 13 | % | | 18 | % | | 15 | % |
| |
(2) | Adjusted to include the impact of ASC 606. Refer to Note 3 for more details on the impact of the adoption of this standard. |
Summary of Significant Accounting Policies
Except for the accounting policies for revenue recognition, deferred revenue and deferred commissions that were updated as a result of adopting ASC 606 and those related to our 0% Convertible Senior Notes due in 2023 (the "Notes"), there have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 31, 2017, filed with the SEC on September 18, 2017, that have had a material impact on our condensed consolidated financial statements and related notes. See Note 3 for a summary of our new accounting policies under ASC 606.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB"), issued ASC 606. The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner which depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The FASB has issued several amendments to the standard, including clarifications on the disclosure of prior period performance obligations and remaining performance obligations.
The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The new standard would have been effective for us beginning August 1, 2018, but early adoption as of the original effective date of August 1, 2017 was also permitted. We elected to early adopt the standard effective August 1, 2017 using the full retrospective method, which required us to recast our historical financial information to conform with the new standard. Refer to Note 3 for details of the impact to previously reported results.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. We adopted this ASU effective August 1, 2017 and our adoption did not have a material impact on our condensed consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We adopted this ASU effective August 1, 2017 and our adoption did not have a material impact on our condensed consolidated financial statements.
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We adopted this ASU effective November 1, 2017 and our adoption did not have any impact on our condensed consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments, with further clarifications made recently with the issuance of ASU 2018-03 and 2018-04. These new standards require equity securities to be measured at fair value with changes in fair value recognized through net income, which results in greater variability in our net income. We adopted the standard on January 1, 2018 and our adoption did not have any impact on our condensed consolidated financial statements since other than our investments in money market funds, which are reported as part of cash and cash equivalents, we do not have any other investments that are classified as equity securities. There are no unrealized gains or losses related to our investments in money market funds, as the fair value is equal to the face value.
Recently Issued and Not Yet Adopted Accounting Pronouncements
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This new standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period amounts shown on the statement of cash flows. ASU 2016-18 is effective for us beginning August 1, 2018, with early adoption permitted. We do not believe that adoption of this ASU will have a material impact on our condensed consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This new standard will require us to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for us beginning August 1, 2018, with early adoption permitted. We are currently evaluating the effect the adoption of this guidance will have on our condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires recognition of right-to-use lease assets and lease liabilities for all leases, except for short-term leases, on the balance sheet of lessees. ASU 2016-02 is effective for us beginning August 1, 2019, with early adoption permitted. This new standard requires a modified retrospective transition approach and provides certain optional transition relief. We currently anticipate that the adoption of this standard will have a material impact on our condensed consolidated balance sheets, given that we had operating lease commitments in excess of $100 million as of April 30, 2018. We expect that most of our operating lease commitments will be subject to the new standard and recognized as lease liabilities and right-of-use assets upon adoption, which will increase the total assets and total liabilities we report. However, we do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated statements of operations, as the expense recognition under this new standard will be similar to current practice.
Note 2. BUSINESS COMBINATIONS
During the three and nine months ended April 30, 2018, we completed two acquisitions. The purchase price allocation for these acquisitions, discussed in detail below, reflects various preliminary fair value estimates and analyses, including certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income taxes, and goodwill, which are subject to change within the measurement period as preliminary valuations are finalized. Measurement period adjustments are recorded in the reporting period in which the estimates are finalized and adjustment amounts are determined. We determined the fair values of the intangible assets with the assistance of a valuation firm. The estimation of the fair value of the intangible assets required the use of valuation techniques and entailed consideration of all the relevant factors that might affect the fair value, such as present value factors and estimates of future revenues and costs.
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Our condensed consolidated financial statements for the three and nine months ended April 30, 2018 include the operations of the acquired companies from the dates the deals closed. Pro forma results of operations for these acquisitions have not been presented because they are not material to our consolidated financial statements, either individually or in the aggregate. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The goodwill recognized in these acquisitions is primarily attributable to the synergies expected from the expanded market opportunities with our offerings and the knowledgeable and experienced workforce that joined us as part of the acquisitions. Goodwill will not be amortized, but will instead be tested for impairment annually or more frequently if certain indicators of impairment are present. Goodwill is not expected to be deductible for income tax purposes.
Minjar, Inc.
On March 16, 2018, we completed the acquisition of Minjar, Inc. ("Minjar"), a privately held Delaware corporation with its offices in Bangalore, India. Minjar is a cloud technology solutions company, and the acquisition will complement and enhance our products, allowing us to offer customers new capabilities to better manage their multi-cloud deployments. At the close of the acquisition, all outstanding shares of Minjar capital stock and all in-the-money options and warrants to purchase Minjar capital stock were purchased or canceled in exchange for an aggregate purchase price of approximately $19.9 million, consisting of $19.4 million in cash and approximately $0.5 million of holdback liability. The holdback liability represents deferred payments to Minjar's founders to be released in installments during the two years following the date of acquisition. As the release of these deferred payments is not contingent upon the future and continued service of the founders, the $0.5 million holdback liability, which approximates fair value, was considered as part of the purchase price.
Certain portions of the consideration for the acquisition have been placed in escrow to secure the indemnification obligations of certain Minjar security holders. In addition to the $19.9 million purchase price, we also entered into employee holdback or deferred payment arrangements with former employees of Minjar who joined us after the acquisition, totaling approximately $3.9 million. As payment of these deferred payments is contingent upon the continuous service of the employees, they are being accounted for as compensation over the required service period of two years.
The preliminary purchase price allocation primarily includes approximately $18.6 million of goodwill, $7.0 million of intangible assets, which primarily consists of approximately $5.6 million related to developed technology and $1.4 million related to customer relationships, both of which will be amortized over an estimated economic life of five years, and $5.7 million of deferred income tax and other tax liabilities.
We recognized approximately $0.6 million of acquisition-related costs, which were expensed as incurred, as general and administrative expenses on our condensed consolidated statement of operations during the nine months ended April 30, 2018.
Netsil Inc.
On March 22, 2018, we completed the acquisition of Netsil Inc. ("Netsil"), a privately held Delaware corporation headquartered in San Francisco, California. This acquisition represents an opportunity for us to accelerate our ability to deliver native multi-cloud operations with the addition of application discovery and operations management. The aggregate purchase price of approximately $67.5 million consisted of approximately $3.7 million in cash and 1,206,364 unregistered shares of our Class A common stock with an aggregate fair value of approximately $63.8 million. The fair value of the shares of common stock issued was determined to be $52.87 per share, the closing price of our stock on March 22, 2018. Certain portions of the consideration for the acquisition, both cash and shares of our Class A common stock, have been placed in escrow to secure the indemnification obligations of certain Netsil security holders.
We also entered into employee holdback or deferred payment arrangements with the founders of Netsil who joined us after the acquisition, whereby we issued 104,426 unregistered shares of our Class A common stock to the founders subject to their continuous employment with us for two years. The fair value of the Class A common stock issued pursuant to the holdback arrangements was approximately $5.5 million, or $52.87 per share, the closing price of our Class A common stock on March 22, 2018. This holdback is being accounted for as stock-based compensation over the required two-year service period.
The preliminary purchase price allocation primarily includes approximately $53.1 million of goodwill, $19.0 million of intangible assets, primarily related to developed technology, which will be amortized over an estimated economic life of seven years, $2.6 million of deferred income tax liabilities, and $1.4 million of assumed debt.
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
We recognized approximately $0.4 million of acquisition-related costs, which were expensed as incurred, as general and administrative expenses on our condensed consolidated statement of operations during the nine months ended April 30, 2018.
The following table presents the preliminary aggregate purchase price allocation related to our acquisitions of Minjar and Netsil as of April 30, 2018:
|
| | | |
| Estimated Fair Value |
| (in thousands) |
Goodwill | $ | 71,652 |
|
Amortizable intangible assets | 25,920 |
|
Tangible assets acquired | 842 |
|
Liabilities assumed | (11,041 | ) |
Total consideration | $ | 87,373 |
|
Note 3. REVENUE, DEFERRED REVENUE AND DEFERRED COMMISSIONS
Revenue Recognition
Effective August 1, 2017, we adopted ASC 606 using the full retrospective method, which required us to recast our historical financial information to conform with the standard. The most significant impact of ASC 606 on our historical financial information relates to the timing of revenue recognition for certain software licenses sold with post-contract customer support ("PCS"), for which we did not have vendor specific objective evidence, ("VSOE"), of fair value under the previous revenue recognition guidance. Under ASC 606, the requirement to have VSOE for undelivered elements is eliminated and we now recognize revenue for such software licenses upon transfer of control to our customers. In addition, the adoption of ASC 606 also resulted in differences in the timing of recognition of contract costs, such as sales commissions, as well as the corresponding impact to our provision for income taxes. The adoption of the standard had no significant impact on our provision for income taxes and had no impact on the net cash from or used in operating, investing or financing activities on our condensed consolidated statements of cash flows. See "ASC 606 Adoption Impact to Previously Reported Results" below for the impact of the adoption of the standard on our consolidated balance sheet and condensed consolidated statements of operations.
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
ASC 606 Adoption Impact to Previously Reported Results
We adjusted our condensed consolidated financial statements from amounts previously reported due to the adoption of ASC 606. Selected consolidated balance sheet line items, adjusted for the adoption of ASC 606, are as follows:
|
| | | | | | | | | | | |
| As of July 31, 2017 |
| As Previously Reported | | Impact of Adoption | | As Adjusted |
| (in thousands) |
Assets | | | | | |
Deferred commissions—current | $ | 27,679 |
| | $ | (3,836 | ) | (1) | $ | 23,843 |
|
Deferred commissions—non-current | 33,709 |
| | 15,975 |
| (1) | 49,684 |
|
Total deferred commissions | $ | 61,388 |
| | $ | 12,139 |
| | $ | 73,527 |
|
Liabilities | | | | | |
Deferred revenue—current | $ | 233,498 |
| | $ | (63,375 | ) | (2) | $ | 170,123 |
|
Deferred revenue—non-current | 292,573 |
| | (93,640 | ) | (2) | 198,933 |
|
Total deferred revenue | $ | 526,071 |
| | $ | (157,015 | ) | | $ | 369,056 |
|
| | | | | |
Accrued expenses and other current liabilities | $ | 9,414 |
| | $ | 293 |
| (3) | $ | 9,707 |
|
| | | | | |
Stockholders' Equity | $ | 48,202 |
| | $ | 168,861 |
| | $ | 217,063 |
|
| |
(1) | Impact of cumulative change in commissions expense |
| |
(2) | Impact of cumulative change in revenue |
| |
(3) | Impact of cumulative change in provision for income taxes |
Selected unaudited condensed consolidated statement of operations line items, adjusted for the adoption of ASC 606, are as follows:
|
| | | | | | | | | | | |
| Three Months Ended April 30, 2017 |
| As Previously Reported | | Impact of Adoption | | As Adjusted |
| (in thousands, except per share data) |
Revenue | | | | | |
Product | $ | 143,142 |
| | $ | 16,934 |
| | $ | 160,076 |
|
Support, entitlements and other services | 48,621 |
| | (3,027 | ) | | 45,594 |
|
Total revenue | $ | 191,763 |
| | $ | 13,907 |
| | $ | 205,670 |
|
Gross profit | $ | 108,557 |
| | $ | 13,907 |
| | $ | 122,464 |
|
Operating expenses | | | | | |
Sales and marketing expenses | $ | 128,007 |
| | $ | (1,261 | ) | | $ | 126,746 |
|
Loss from operations | $ | (109,667 | ) | | $ | 15,168 |
| | $ | (94,499 | ) |
Net loss | $ | (111,977 | ) | | $ | 15,142 |
| | $ | (96,835 | ) |
Basic and diluted net loss per share | $ | (0.78 | ) | | $ | 0.11 |
| | $ | (0.67 | ) |
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
|
| | | | | | | | | | | |
| Nine Months Ended April 30, 2017 |
| As Previously Reported | | Impact of Adoption | | As Adjusted |
| (in thousands, except per share data) |
Revenue | | | | | |
Product | $ | 411,307 |
| | $ | 60,518 |
| | $ | 471,825 |
|
Support, entitlements and other services | 129,460 |
| | (7,840 | ) | | 121,620 |
|
Total revenue | $ | 540,767 |
| | $ | 52,678 |
| | $ | 593,445 |
|
Gross profit | $ | 310,953 |
| | $ | 52,678 |
| | $ | 363,631 |
|
Operating expenses | | | | | |
Sales and marketing expenses | $ | 368,026 |
| | $ | (1,281 | ) | | $ | 366,745 |
|
Loss from operations | $ | (338,338 | ) | | $ | 53,959 |
| | $ | (284,379 | ) |
Net loss | $ | (367,358 | ) | | $ | 53,852 |
| | $ | (313,506 | ) |
Basic and diluted net loss per share | $ | (3.07 | ) | | $ | 0.45 |
| | $ | (2.62 | ) |
Unaudited revenue by geographic location, based on bill-to location, adjusted for the adoption of ASC 606, is as follows:
|
| | | | | | | | | | | |
| Three Months Ended April 30, 2017 |
| As Previously Reported | | Impact of Adoption | | As Adjusted |
| (in thousands) |
U.S. | $ | 112,218 |
| | $ | 2,105 |
| | $ | 114,323 |
|
Europe, the Middle East and Africa | 38,023 |
| | 1,248 |
| | 39,271 |
|
Asia-Pacific | 35,508 |
| | 9,935 |
| | 45,443 |
|
Other Americas | 6,014 |
| | 619 |
| | 6,633 |
|
Total revenue | $ | 191,763 |
| | $ | 13,907 |
| | $ | 205,670 |
|
|
| | | | | | | | | | | |
| Nine Months Ended April 30, 2017 |
| As Previously Reported | | Impact of Adoption | | As Adjusted |
| (in thousands) |
U.S. | $ | 317,262 |
| | $ | 8,271 |
| | $ | 325,533 |
|
Europe, the Middle East and Africa | 95,543 |
| | 3,746 |
| | 99,289 |
|
Asia-Pacific | 101,798 |
| | 39,435 |
| | 141,233 |
|
Other Americas | 26,164 |
| | 1,226 |
| | 27,390 |
|
Total revenue | $ | 540,767 |
| | $ | 52,678 |
| | $ | 593,445 |
|
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Selected unaudited condensed consolidated statement of cash flows line items, adjusted for the adoption of ASC 606, are as follows:
|
| | | | | | | | | | | |
| Nine Months Ended April 30, 2017 |
| As Previously Reported | | Impact of Adoption | | As Adjusted |
| (in thousands) |
Cash flows from operating activities: | | | | | |
Net loss | $ | (367,358 | ) | | $ | 53,852 |
| | $ | (313,506 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
Deferred commissions | $ | (13,406 | ) | | $ | (1,282 | ) | | $ | (14,688 | ) |
Accrued expenses and other liabilities | $ | 5,291 |
| | $ | 108 |
| | $ | 5,399 |
|
Deferred revenue | $ | 160,527 |
| | $ | (52,678 | ) | | $ | 107,849 |
|
The core principle of ASC 606 is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This principle is achieved by applying the following five-step approach:
| |
• | Identification of the contract, or contracts, with a customer — A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. 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 or, in the case of a new customer, published credit and financial information pertaining to the customer. |
| |
• | Identification of the performance obligations in the contract — Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or services either on their own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, we apply judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation. |
| |
• | Determination of the transaction price — The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer. |
| |
• | Allocation of the transaction price to the performance obligations in the contract — If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price ("SSP"). We determine SSP based on the price at which the performance obligation is sold separately. If the SSP is not observable through past transactions, we estimate the SSP, taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. |
| |
• | Recognition of revenue when, or as, we satisfy a performance obligation — We satisfy performance obligations either over time or at a point in time, as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied with the transfer of a promised good or service to a customer. |
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Disaggregation of Revenue
We generate revenue from the sale of our software solution, which can be delivered on a hardware appliance or on a standalone basis, PCS and professional services. A substantial portion of our revenue is generated through channel partners, including distributors and resellers. We also sell our software solution through our OEM partners, such as Dell Technologies and Lenovo Group Ltd. These OEM partners embed our software in their own hardware, and we provide limited PCS on these transactions. The following table depicts the disaggregation of revenue by revenue type, consistent with how we evaluate our financial performance:
|
| | | | | | | | | | | | | | | |
| Three Months Ended April 30, | | Nine Months Ended April 30, |
| 2017 | | 2018 | | 2017 | | 2018 |
| (in thousands) |
Software revenue | $ | 100,810 |
| | $ | 158,500 |
| | $ | 308,400 |
| | $ | 441,885 |
|
Hardware revenue | 59,266 |
| | 62,617 |
| | 163,425 |
| | 221,454 |
|
Support, entitlements and other services revenue | 45,594 |
| | 68,296 |
| | 121,620 |
| | 188,370 |
|
Total revenue | $ | 205,670 |
| | $ | 289,413 |
| | $ | 593,445 |
| | $ | 851,709 |
|
Software revenue — A majority of our product revenue is generated from the sale of our software, which is either delivered on a hardware appliance that is configured to order, or delivered as standalone software, which can be installed on our customers' hardware appliances that are typically purchased separately from an OEM partner or other manufacturers of compatible hardware, including our contract manufacturers. Software revenue includes our base operating system, which can be delivered through different platforms, and licenses to other additional features, which are sold by us. Revenue from our software products is generally recognized upon transfer of control to the customer.
Hardware revenue — In transactions where we deliver the hardware appliance, we consider ourselves to be the principal in the transaction and we record revenue and costs of goods sold on a gross basis. We consider the amount allocated to hardware revenue to be equivalent to the cost of the hardware procured. Hardware revenue is generally recognized upon transfer of control to the customer.
Support, entitlements and other services revenue — We generate our support, entitlements and other services revenue primarily from PCS contracts, and, to a lesser extent, from professional services. The majority of our product sales are sold in conjunction with PCS contracts, with terms ranging from one to five years. We recognize revenue from PCS contracts ratably over the contractual service period. The service period typically commences upon transfer of control of the corresponding products to the customer. We recognize revenue related to professional services as they are performed.
Contracts with multiple performance obligations — Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative SSP basis. For deliverables that we routinely sell separately, such as support and maintenance on our core offerings, we determine SSP by evaluating the standalone sales over the trailing 12 months. For those that are not sold routinely, we determine SSP based on our overall pricing trends and objectives, taking into consideration market conditions and other factors, including the value of our contracts, the products sold and geographic locations.
Contract balances — The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. A receivable is recognized in the period we deliver goods or provide services, or when our right to consideration is unconditional.
Payment terms on invoiced amounts are typically 30 days. The balance of accounts receivable, net of allowance for doubtful accounts, as of July 31, 2017 and April 30, 2018 is presented in the accompanying condensed consolidated balance sheets.
Costs to obtain and fulfill a contract — We capitalize commissions paid to sales personnel and the related payroll taxes when customer contracts are signed. These costs are recorded as deferred commission expense in the condensed consolidated balance sheets, current and non-current. We determine whether costs should be deferred based on our sales compensation plans, if the commissions are incremental and would not have been incurred absent the execution of the customer contract. Sales commissions for renewals of customer contracts are not commensurate with the commissions paid for the acquisition of the initial contract given the substantive difference in commission rates in proportion to thei
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
r respective contract values. Commissions paid upon the initial acquisition of a contract are amortized over the estimated period of benefit, which may exceed the term of the initial contract. Accordingly, the amortization of deferred costs is recognized on a systematic basis that is consistent with the pattern of revenue recognition allocated to each performance obligation and included in sales and marketing expense in the condensed consolidated statements of operations. We determine the estimated period of benefit by evaluating the expected renewals of our customer contracts, the duration of our relationships with our customers, customer retention data, our technology development lifecycle, and other factors. Deferred costs are periodically reviewed for impairment.
Deferred revenue — We record deferred revenue when cash payments are received in advance of our performance. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the consolidated balance sheet date.
Significant changes in the balance of deferred revenue (contract liability) and total deferred commissions (contract asset) for the periods presented are as follows:
|
| | | | | | | |
| Three Months Ended April 30, 2018 |
| Deferred Revenue | | Deferred Commissions |
| (in thousands) |
Balance as of January 31, 2018 | $ | 478,000 |
| | $ | 99,628 |
|
Additions | 130,061 |
| | 30,755 |
|
Revenue/commissions recognized | (68,296 | ) | | (27,655 | ) |
Assumed in a business combination | 124 |
| | — |
|
Balance as of April 30, 2018 | $ | 539,889 |
| | $ | 102,728 |
|
|
| | | | | | | |
| Nine Months Ended April 30, 2018 |
| Deferred Revenue | | Deferred Commissions |
| (in thousands) |
Balance as of July 31, 2017(1) | $ | 369,056 |
| | $ | 73,527 |
|
Additions | 359,079 |
| | 110,344 |
|
Revenue/commissions recognized | (188,370 | ) | | (81,143 | ) |
Assumed in a business combination | 124 |
| | — |
|
Balance as of April 30, 2018 | $ | 539,889 |
| | $ | 102,728 |
|
| |
(1) | See details above for the summary of adjustments to deferred commissions and deferred revenue as a result of the adoption of ASC 606. |
Of the $102.7 million deferred commissions balance as of April 30, 2018, we expect to recognize approximately 30% as commission expense over the next 12 months, and the remainder thereafter.
During the three and nine months ended April 30, 2017, we recognized revenue of approximately $38.8 million and $77.9 million pertaining to amounts deferred as of January 31, 2017 and July 31, 2016, respectively. During the three and nine months ended April 30, 2018, we recognized revenue of approximately $49.4 million and $136.8 million pertaining to amounts deferred as of January 31, 2018 and July 31, 2017, respectively.
The majority of our contracted but not invoiced performance obligations are subject to cancellation terms. Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized ("contracted not recognized"), which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenue in future periods and excludes performance obligations that are subject to cancellation terms. Contracted not recognized revenue was approximately $567.1 million as of April 30, 2018, of which we expect to recognize approximately 46% over the next 12 months, and the remainder thereafter.
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Note 4. FAIR VALUE MEASUREMENTS
The fair value of our financial assets and liabilities measured on a recurring basis is as follows:
|
| | | | | | | | | | | | | | | |
| As of July 31, 2017 |
| Level I | | Level II | | Level III | | Total |
| (in thousands) |
Financial Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 34,784 |
| | $ | — |
| | $ | — |
| | $ | 34,784 |
|
Commercial paper | — |
| | 23,041 |
| | — |
| | 23,041 |
|
Short-term investments: | | | | | | |
|
|
Corporate bonds | — |
| | 160,634 |
| | — |
| | 160,634 |
|
Commercial paper | — |
| | 36,084 |
| | — |
| | 36,084 |
|
U.S. government securities | — |
| | 13,976 |
| | — |
| | 13,976 |
|
Total measured at fair value | $ | 34,784 |
|
| $ | 233,735 |
|
| $ | — |
|
| $ | 268,519 |
|
Cash | | | | | | | 80,534 |
|
Total cash, cash equivalents and short-term investments | | | | | | | $ | 349,053 |
|
Financial Liabilities: | | | | | | | |
Contingent consideration | $ | — |
| | $ | — |
| | $ | 4,295 |
| | $ | 4,295 |
|
|
| | | | | | | | | | | | | | | |
| As of April 30, 2018 |
| Level I | | Level II | | Level III | | Total |
| (in thousands) |
Financial Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 95,258 |
| | $ | — |
| | $ | — |
| | $ | 95,258 |
|
Commercial paper | — |
| | 108,253 |
| | — |
| | 108,253 |
|
Corporate bonds | — |
| | 4,000 |
| | — |
| | 4,000 |
|
Short-term investments: | | | | | | |
|
|
Corporate bonds | — |
| | 395,107 |
| | — |
| | 395,107 |
|
Commercial paper | — |
| | 118,939 |
| | — |
| | 118,939 |
|
U.S. government securities | — |
| | 32,629 |
| | — |
| | 32,629 |
|
Total measured at fair value | $ | 95,258 |
| | $ | 658,928 |
| | $ | — |
| | $ | 754,186 |
|
Cash | | | | | | | 169,278 |
|
Total cash, cash equivalents and short-term investments | | | | | | | $ |
|