Item 1. Financial Statements (Unaudited)
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," "our" or "Nutanix"), has operations throughout North America, Europe, Asia Pacific, the Middle East, Latin America and Africa.
We provide a leading enterprise cloud platform, which we call the Nutanix Hybrid Cloud Platform, that consists of software solutions and cloud services that power our customers' hybrid cloud and multicloud strategies. Our solutions run across private-, hybrid- and multicloud environments, and allow organizations to seamlessly "lift and shift" their workloads, including enterprise applications, high-performance databases, end-user computing and virtual desktop infrastructure ("VDI") services, cloud native workloads, and analytics applications, between different cloud environments. Our solutions are primarily sold through channel partners, including distributors, resellers and original equipment manufacturers ("OEMs") (collectively, "Partners"), and delivered directly to our end customers.
Principles of Consolidation and Significant Accounting Policies
The accompanying condensed consolidated financial statements, which include the accounts of Nutanix, Inc. and its wholly-owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") and are consistent in all material respects with those included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2020, filed with the Securities and Exchange Commission ("SEC") on September 23, 2020. 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. The consolidated balance sheet as of July 31, 2020 is derived from audited financial statements, however, it does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. 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, 2020, which was filed with the SEC on September 23, 2020.
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 condensed consolidated financial statements and accompanying notes. Such management estimates and assumptions include, but are not limited to, the best estimate of selling prices for products and related support; useful lives and recoverability of intangible assets and property and equipment; allowance for credit losses; determination of fair value of stock-based awards; accounting for income taxes, including the valuation allowance on deferred tax assets and uncertain tax positions; warranty liability; purchase commitment liabilities to our OEMs; sales commissions expense and the period of benefit for deferred commissions; whether an arrangement is or contains a lease; the incremental borrowing rate to measure the present value of operating right-of-use assets and lease liabilities; the inputs used to determine the fair value of the contingent liability associated with the conversion feature of the convertible senior notes due in 2026; 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.
In response to the ongoing and rapidly evolving COVID-19 pandemic, we considered the impact of the estimated economic implications on our critical and significant accounting estimates, including assessment of collectibility of customer contracts, valuation of accounts receivable, provision for purchase commitments to our OEMs and impairment of long-lived assets, right-of-use assets, and deferred commissions.
Concentration of Risk
Concentration of revenue and accounts receivable—We sell our products primarily through our Partners and occasionally directly to end customers. For the three and six months ended January 31, 2020 and 2021, no end customer accounted for more than 10% of total revenue or accounts receivable.
13
Table of Contents
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
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
|
Six Months Ended
January 31,
|
|
|
Accounts Receivable
as of
|
|
Partners
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
July 31,
2020
|
|
|
January 31,
2021
|
|
Partner A
|
|
|
32
|
%
|
|
|
34
|
%
|
|
|
30
|
%
|
|
|
31
|
%
|
|
|
33
|
%
|
|
|
33
|
%
|
Partner B
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
11
|
%
|
|
|
(1
|
)
|
|
|
11
|
%
|
Partner C
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
11
|
%
|
Partner D
|
|
|
14
|
%
|
|
|
13
|
%
|
|
|
13
|
%
|
|
|
14
|
%
|
|
|
16
|
%
|
|
|
10
|
%
|
Summary of Significant Accounting Policies
Except for the accounting for the derivative liability associated with the convertible notes due in 2026, as described below, 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, 2020, filed with the SEC on September 23, 2020, that have had a material impact on our condensed consolidated financial statements.
Derivative Liability
We evaluate convertible notes or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of Accounting Standards Codification ("ASC") 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity. The result of this accounting guidance could result in the fair value of a financial instrument being classified as a derivative instrument and recorded at fair market value at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the condensed consolidated statements of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. We adopted this new standard effective August 1, 2020 and the adoption did not have a material impact on our condensed consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB's disclosure framework project. We adopted this new standard effective August 1, 2020 and the adoption did not have a material impact on our quarterly or annual disclosures.
14
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Recently Issued and Not Yet Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Under ASU 2020-06 the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate. ASU 2020-06 also provides for certain disclosures with regard to convertible instruments and associated fair values. ASU 2020-06 is effective for us in the first quarter of fiscal 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. As such, we can early adopt this standard beginning in the first quarter of fiscal 2022. We are currently evaluating the potential impact of adoption of this guidance on our condensed consolidated financial statements.
NOTE 2. REVENUE, DEFERRED REVENUE AND DEFERRED COMMISSIONS
Disaggregation of Revenue and Revenue Recognition
We generate revenue primarily from the sale of our enterprise cloud platform, which can be delivered pre-installed on an appliance that is configured to order or delivered separately to be utilized on a variety of certified hardware platforms. When the software license is not portable to other appliances, it can be used over the life of the associated appliance, while subscription term-based licenses typically have a term of one to five years. Configured-to-order appliances, including our Nutanix-branded NX hardware line, can be purchased from one of our OEMs or in limited cases, directly from Nutanix. Our enterprise cloud platform is typically purchased with one or more years of support and entitlements, which includes the right to software upgrades and enhancements as well as technical support. A substantial portion of sales are made through channel partners and OEM relationships.
The following table depicts the disaggregation of revenue by revenue type, consistent with how we evaluate our financial performance:
|
|
Three Months Ended
January 31,
|
|
|
Six Months Ended
January 31,
|
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
|
(in thousands)
|
|
Subscription
|
|
$
|
266,544
|
|
|
$
|
305,946
|
|
|
$
|
484,440
|
|
|
$
|
584,111
|
|
Non-portable software
|
|
|
59,131
|
|
|
|
21,661
|
|
|
|
136,702
|
|
|
|
41,704
|
|
Hardware
|
|
|
8,542
|
|
|
|
1,321
|
|
|
|
18,266
|
|
|
|
2,050
|
|
Professional services
|
|
|
12,550
|
|
|
|
17,454
|
|
|
|
22,127
|
|
|
|
31,271
|
|
Total revenue
|
|
$
|
346,767
|
|
|
$
|
346,382
|
|
|
$
|
661,535
|
|
|
$
|
659,136
|
|
Subscription revenue — Subscription revenue includes any performance obligation which has a defined term and is generated from the sales of software entitlement and support subscriptions, subscription software licenses and cloud-based software as a service ("SaaS") offerings.
|
•
|
Ratable — We recognize revenue from software entitlement and support subscriptions and SaaS offerings ratably over the contractual service period, the substantial majority of which relate to software entitlement and support subscriptions. These offerings represented approximately $123.8 million and $238.7 million of our subscription revenue for the three and six months ended January 31, 2020 and approximately $159.2 million and $307.0 million of our subscription revenue for the three and six months ended January 31, 2021, respectively.
|
|
•
|
Upfront — Revenue from our subscription software licenses is generally recognized upfront upon transfer of control to the customer, which happens when we make the software available to the customer. These subscription software licenses represented approximately $142.7 million and $245.7 million of our subscription revenue for the three and six months ended January 31, 2020 and approximately $146.7 million and $277.1 million of our subscription revenue for the three and six months ended January 31, 2021, respectively.
|
15
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Non-portable software revenue — Non-portable software revenue includes sales of our enterprise cloud platform when delivered on a configured-to-order appliance by us or one of our OEM partners. The software licenses associated with these sales are typically non-portable and can be used over the life of the appliance on which the software is delivered. Revenue from our non-portable software products is generally recognized upon transfer of control to the customer.
Hardware revenue — In transactions where the hardware appliance is purchased directly from Nutanix, 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.
Professional services revenue — We also sell professional services with our products. We recognize revenue related to professional services as they are performed.
Contracts with multiple performance obligations — The majority 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 standalone selling price ("SSP") basis. For deliverables that we routinely sell separately, such as software entitlement and support subscriptions 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 credit losses. A receivable is recognized in the period we deliver goods or provide services, or when our right to consideration is unconditional. In situations where revenue recognition occurs before invoicing, an unbilled receivable is created, which represents a contract asset. Unbilled accounts receivable, included in accounts receivable, net on the condensed consolidated balance sheets, was not material for any of the periods presented.
Payment terms on invoiced amounts are typically 30-45 days. We assess credit losses on accounts receivable by taking into consideration past collection experience, the credit quality of the customer, the age of the receivable balance, current and future economic conditions, and forecasts that may affect the collectibility of the reported amount. The balance of accounts receivable, net of allowance for credit losses, as of July 31, 2020 and January 31, 2021 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 commissions 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. Commissions paid upon the initial acquisition of a contract are recognized over the estimated period of benefit, which may exceed the term of the initial contract if the commissions expected to be paid upon renewal are not commensurate with that of the initial contract. Accordingly, deferred costs are recognized on a systematic basis that is consistent with the pattern of revenue recognition allocated to each performance obligation over the entire period of benefit 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 customer contracts, the duration of relationships with our customers, customer retention data, our technology development lifecycle and other factors. Deferred costs are periodically reviewed for impairment. Effective August 1, 2020, we changed our sales compensation plans such that commissions paid on subscription software license renewals are not commensurate with commissions paid on the initial contract. Accordingly, commissions paid on initial sales of subscription software licenses are now being recognized in a pattern consistent with the revenue recognition for each performance obligation, including those we expect upon renewal, over the entire period of benefit, rather than only the term of the initial contract, thus resulting in less expense being recognized in the initial contract period.
Taxes assessed by a government authority that are both imposed on and concurrent with specific revenue transactions between us and our customers are presented on a net basis in our condensed consolidated statements of operations.
16
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Deferred revenue — Deferred revenue primarily consists of amounts that have been invoiced but not yet recognized as revenue and primarily pertain to software entitlement and support subscriptions and professional services. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the condensed consolidated balance sheet date.
Significant changes in the balance of deferred revenue (contract liability) and deferred commissions (contract asset) for the periods presented are as follows:
|
|
Deferred
Revenue
|
|
|
Deferred
Commissions
|
|
|
|
(in thousands)
|
|
Balance as of July 31, 2020
|
|
$
|
1,183,441
|
|
|
$
|
215,528
|
|
Additions
|
|
|
180,044
|
|
|
|
67,630
|
|
Revenue/commissions recognized
|
|
|
(157,002
|
)
|
|
|
(39,400
|
)
|
Balance as of October 31, 2020
|
|
|
1,206,483
|
|
|
|
243,758
|
|
Additions
|
|
|
211,392
|
|
|
|
86,009
|
|
Revenue/commissions recognized
|
|
|
(171,584
|
)
|
|
|
(46,562
|
)
|
Balance as of January 31, 2021
|
|
$
|
1,246,291
|
|
|
$
|
283,205
|
|
During the three and six months ended January 31, 2020, we recognized revenue of approximately $119.3 million and $207.5 million pertaining to amounts deferred as of October 31, 2019 and July 31, 2019, respectively. During the three and six months ended January 31, 2021, we recognized revenue of approximately $152.5 million and $272.6 million pertaining to amounts deferred as of October 31, 2020 and July 31, 2020, respectively.
Many 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 $1,314.1 million as of January 31, 2021, of which we expect to recognize approximately 48% over the next 12 months, and the remainder thereafter.
17
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3. FAIR VALUE MEASUREMENTS
The fair value of our financial assets and liabilities measured on a recurring basis is as follows:
|
|
As of July 31, 2020
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
142,936
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
142,936
|
|
Commercial paper
|
|
|
—
|
|
|
|
8,999
|
|
|
|
—
|
|
|
|
8,999
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
—
|
|
|
|
345,265
|
|
|
|
—
|
|
|
|
345,265
|
|
Commercial paper
|
|
|
—
|
|
|
|
29,702
|
|
|
|
—
|
|
|
|
29,702
|
|
U.S. government securities
|
|
|
—
|
|
|
|
26,074
|
|
|
|
—
|
|
|
|
26,074
|
|
Total measured at fair value
|
|
$
|
142,936
|
|
|
$
|
410,040
|
|
|
$
|
—
|
|
|
$
|
552,976
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,802
|
|
Total cash, cash equivalents and short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
719,778
|
|
|
|
As of January 31, 2021
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
32,661
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,661
|
|
Commercial paper
|
|
|
—
|
|
|
|
67,492
|
|
|
|
—
|
|
|
|
67,492
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
—
|
|
|
|
547,316
|
|
|
|
—
|
|
|
|
547,316
|
|
Commercial paper
|
|
|
—
|
|
|
|
290,432
|
|
|
|
—
|
|
|
|
290,432
|
|
U.S. government securities
|
|
|
—
|
|
|
|
152,390
|
|
|
|
—
|
|
|
|
152,390
|
|
Total measured at fair value
|
|
$
|
32,661
|
|
|
$
|
1,057,630
|
|
|
$
|
—
|
|
|
$
|
1,090,291
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198,548
|
|
Total cash, cash equivalents and short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,288,839
|
|
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
We report our financial instruments at fair value, with the exception of the 0% convertible senior notes, due in January 2023, (the "2023 Notes") and the 2.50% convertible senior notes, due in 2026, (the "2026 Notes") (collectively, the "Notes"). Financial instruments that are not recorded at fair value on a recurring basis are measured at fair value on a quarterly basis for disclosure purposes. The carrying values and estimated fair values of financial instruments not recorded at fair value are as follows:
|
|
As of July 31, 2020
|
|
|
As of January 31, 2021
|
|
|
|
Carrying
Value
|
|
|
Estimated Fair
Value
|
|
|
Carrying
Value
|
|
|
Estimated Fair
Value
|
|
|
|
(in thousands)
|
|
2023 Notes
|
|
$
|
490,222
|
|
|
$
|
529,385
|
|
|
$
|
506,670
|
|
|
$
|
590,525
|
|
2026 Notes
|
|
|
—
|
|
|
|
—
|
|
|
|
505,055
|
|
|
|
1,009,733
|
|
Total
|
|
$
|
490,222
|
|
|
$
|
529,385
|
|
|
$
|
1,011,725
|
|
|
$
|
1,600,258
|
|
The carrying value of the 2023 Notes as of July 31, 2020 and January 31, 2021 was net of the unamortized debt discount of $80.3 million and $64.7 million, respectively, and unamortized debt issuance costs of $4.5 million and $3.6 million, respectively.
18
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The carrying value of the 2026 Notes as of January 31, 2021 was net of the unamortized debt discount of $219.8 million and unamortized debt issuance costs of $25.1 million.
The total estimated fair value of the 2023 Notes was determined based on the closing trading price per $100 of the 2023 Notes as of the last day of trading for the period. We consider the fair value of the 2023 Notes to be a Level 2 valuation due to the limited trading activity.
The total estimated fair value of the 2026 Notes is based on a binomial model. We consider the fair value of the 2026 Notes to be a Level 3 valuation, as the 2026 Notes are not publicly traded. The Level 3 inputs used are the same as those used to determine the estimated fair value of the associated derivative liability, as detailed below.
Derivative Liability
The conversion feature of the 2026 Notes represents an embedded derivative. The 2026 Notes are not considered to be conventional debt and we determined that the embedded conversion feature was required to be bifurcated from the host debt and accounted for as a derivative liability, as the 2026 Notes are convertible into a variable number of shares until the conversion price becomes fixed in September 2021, based on the level of achievement of the associated financial performance metric. As such, the initial fair value of the derivative instrument was recorded as a liability in the condensed consolidated balance sheet with the corresponding amount recorded as a discount to the 2026 Notes upon issuance. The derivative liability is considered a Level 3 valuation and is recorded at its estimated fair value at the end of each reporting period, with the change in fair value recognized within other expense, net in the condensed consolidated statements of operations.
The following table shows the estimated fair value of the derivative liability as of the issuance of the 2026 Notes and the change in fair value from issuance through January 31, 2021:
|
|
Six Months Ended
January 31, 2021
|
|
|
|
(in thousands)
|
|
Derivative liability at issuance of the 2026 Notes
|
|
$
|
230,910
|
|
Change in fair value
|
|
|
166,380
|
|
Derivative liability, end of period
|
|
$
|
397,290
|
|
We estimated the fair value of the derivative liability using a binomial model, with the following valuation inputs:
|
|
As of
|
|
|
|
September 24, 2020
|
|
|
January 31, 2021
|
|
Conversion ratio (1)
|
|
Conversion price of $26.63 with a 37.552 conversion rate per $1,000
|
|
|
Conversion price of $27.75 with a 36.036 conversion rate per $1,000
|
|
Risk-free rate
|
|
0.4%
|
|
|
0.6%
|
|
Discount rate (2)
|
|
9.0%
|
|
|
6.5%
|
|
Volatility
|
|
42.7%
|
|
|
42.5%
|
|
Stock price
|
|
$21.26
|
|
|
|
$30.52
|
|
|
(1)
|
The conversion ratio was estimated based on the latest forecast of the associated financial performance metric.
|
|
(2)
|
The discount rate was estimated based on the implied rate for the 2023 Notes as well as a credit analysis.
|
19
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 4. BALANCE SHEET COMPONENTS
Short-Term Investments
The amortized cost of our short-term investments approximates their fair value. Unrealized losses related to our short-term investments are generally due to interest rate fluctuations, as opposed to credit quality. However, we review individual securities that are in an unrealized loss position in order to evaluate whether or not they have experienced or are expected to experience credit losses that would result in a decline in fair value. As of July 31, 2020 and January 31, 2021, unrealized gains and losses from our short-term investments were not material and were not the result of a decline in credit quality. As a result, at July 31, 2020 and January 31, 2021, we did not record any credit losses for these investments.
The following table summarizes the estimated fair value of our investments in marketable debt securities by their contractual maturity dates:
|
|
As of
January 31, 2021
|
|
|
|
(in thousands)
|
|
Due within one year
|
|
$
|
808,386
|
|
Due in one to two years
|
|
|
181,752
|
|
Total
|
|
$
|
990,138
|
|
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consists of the following:
|
|
As of
|
|
|
|
July 31,
2020
|
|
|
January 31,
2021
|
|
|
|
(in thousands)
|
|
Prepaid operating expenses
|
|
$
|
31,690
|
|
|
$
|
46,945
|
|
VAT receivables
|
|
|
8,381
|
|
|
|
7,611
|
|
Tenant improvement allowance receivables
|
|
|
8,557
|
|
|
|
—
|
|
Other current assets
|
|
|
14,404
|
|
|
|
15,438
|
|
Total prepaid expenses and other current assets
|
|
$
|
63,032
|
|
|
$
|
69,994
|
|
Property and Equipment, Net
Property and equipment, net consists of the following:
|
|
|
|
|
|
As of
|
|
|
|
Estimated
Useful Life
|
|
|
July 31,
2020
|
|
|
January 31,
2021
|
|
|
|
(in months)
|
|
|
(in thousands)
|
|
Computer, production, engineering and other equipment
|
|
|
36
|
|
|
$
|
245,245
|
|
|
$
|
268,470
|
|
Demonstration units
|
|
|
12
|
|
|
|
66,569
|
|
|
|
67,735
|
|
Leasehold improvements
|
|
(1)
|
|
|
|
65,557
|
|
|
|
62,623
|
|
Furniture and fixtures
|
|
|
60
|
|
|
|
17,026
|
|
|
|
16,482
|
|
Total property and equipment, gross
|
|
|
|
|
|
|
394,397
|
|
|
|
415,310
|
|
Less: accumulated depreciation (2)
|
|
|
|
|
|
|
(251,225
|
)
|
|
|
(283,339
|
)
|
Total property and equipment, net
|
|
|
|
|
|
$
|
143,172
|
|
|
$
|
131,971
|
|
|
(1)
|
Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the remaining lease term.
|
|
(2)
|
Includes a $1.2 million write-off related to the impairment of certain leasehold improvements during the fiscal quarter ended January 31, 2020 and a $0.9 million write-off related to the impairment of certain leasehold improvements during the fiscal quarter ended October 31, 2020. For additional information on these lease-related impairments, refer to Note 6.
|
20
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Depreciation expense related to our property and equipment was $18.7 million and $36.9 million for the three and six months ended January 31, 2020 and $19.2 million and $38.3 million for the three and six months ended January 31, 2021, respectively.
Goodwill and Intangible Assets, Net
There was no change in the carrying value of goodwill during the six months ended January 31, 2021.
Intangible assets, net consists of the following:
|
|
As of
|
|
|
|
July 31,
2020
|
|
|
January 31,
2021
|
|
|
|
(in thousands)
|
|
Developed technology
|
|
$
|
79,300
|
|
|
$
|
79,300
|
|
Customer relationships
|
|
|
8,860
|
|
|
|
8,860
|
|
Trade name
|
|
|
4,170
|
|
|
|
4,170
|
|
Total intangible assets, gross
|
|
|
92,330
|
|
|
|
92,330
|
|
Less:
|
|
|
|
|
|
|
|
|
Accumulated amortization of developed technology
|
|
|
(35,987
|
)
|
|
|
(43,376
|
)
|
Accumulated amortization of customer relationships
|
|
|
(4,953
|
)
|
|
|
(5,733
|
)
|
Accumulated amortization of trade name
|
|
|
(1,998
|
)
|
|
|
(2,519
|
)
|
Total accumulated amortization
|
|
|
(42,938
|
)
|
|
|
(51,628
|
)
|
Total intangible assets, net
|
|
$
|
49,392
|
|
|
$
|
40,702
|
|
Amortization expense related to our intangible assets is being recognized in the condensed consolidated statements of operations within product cost of revenue for developed technology and sales and marketing expense for customer relationships and trade name.
The estimated future amortization expense of our intangible assets is as follows:
Fiscal Year Ending July 31:
|
|
Amount
|
|
|
|
(in thousands)
|
|
2021 (remaining six months)
|
|
$
|
8,690
|
|
2022
|
|
|
16,183
|
|
2023
|
|
|
10,856
|
|
2024
|
|
|
3,210
|
|
2025
|
|
|
1,763
|
|
Total
|
|
$
|
40,702
|
|
Accrued Compensation and Benefits
Accrued compensation and benefits consists of the following:
|
|
As of
|
|
|
|
July 31,
2020
|
|
|
January 31,
2021
|
|
|
|
(in thousands)
|
|
Accrued commissions
|
|
$
|
33,503
|
|
|
$
|
36,878
|
|
Contributions to ESPP withheld
|
|
|
16,563
|
|
|
|
29,852
|
|
Accrued vacation
|
|
|
24,006
|
|
|
|
26,944
|
|
Payroll taxes payable
|
|
|
10,742
|
|
|
|
23,305
|
|
Accrued bonus
|
|
|
5,568
|
|
|
|
12,576
|
|
Accrued benefits
|
|
|
8,426
|
|
|
|
9,531
|
|
Other
|
|
|
10,301
|
|
|
|
11,929
|
|
Total accrued compensation and benefits
|
|
$
|
109,109
|
|
|
$
|
151,014
|
|
21
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consists of the following:
|
|
As of
|
|
|
|
July 31,
2020
|
|
|
January 31,
2021
|
|
|
|
(in thousands)
|
|
Income taxes payable
|
|
$
|
9,703
|
|
|
$
|
8,997
|
|
Accrued professional services
|
|
|
3,006
|
|
|
|
4,079
|
|
Other
|
|
|
13,215
|
|
|
|
13,054
|
|
Total accrued expenses and other current liabilities
|
|
$
|
25,924
|
|
|
$
|
26,130
|
|
NOTE 5. CONVERTIBLE SENIOR NOTES
2023 Notes
In January 2018, we issued the 2023 Notes with a 0% interest rate for an aggregate principal amount of $575.0 million, due in 2023, in a private placement to qualified institutional buyers pursuant to Rule144A under the Securities Act. This included $75.0 million in aggregate principal amount of the 2023 Notes that we issued resulting from initial purchasers fully exercising their option to purchase additional notes. There are no required principal payments prior to the maturity of the 2023 Notes. The total net proceeds from the 2023 Notes are as follows:
|
|
Amount
|
|
|
|
(in thousands)
|
|
Principal amount
|
|
$
|
575,000
|
|
Less: initial purchasers' discount
|
|
|
(10,781
|
)
|
Less: cost of the bond hedges
|
|
|
(143,175
|
)
|
Add: proceeds from the sale of warrants
|
|
|
87,975
|
|
Less: other issuance costs
|
|
|
(707
|
)
|
Net proceeds
|
|
$
|
508,312
|
|
The 2023 Notes do not bear any interest and will mature on January 15, 2023, unless earlier converted or repurchased in accordance with their terms. The 2023 Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends, or the issuance or repurchase of securities by us.
Each $1,000 of principal of the 2023 Notes will initially be convertible into 20.4705 shares of our Class A common stock, which is equivalent to an initial conversion price of approximately $48.85 per share, subject to adjustment upon the occurrence of specified events. Holders of these Notes may convert their Notes at their option at any time prior to the close of the business day immediately preceding October 15, 2022, only under the following circumstances:
|
1)
|
during any fiscal quarter commencing after the fiscal quarter ending on April 30, 2018 (and only during such fiscal quarter), if the last reported sale price of our Class A 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 on each applicable trading day;
|
|
2)
|
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 Class A common stock and the conversion rate for the 2023 Notes on each such trading day; or
|
|
3)
|
upon the occurrence of certain specified corporate events.
|
22
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Based on the closing price of our Class A common stock of $30.52 on January 31, 2021, the if-converted value of the 2023 Notes was lower than the principal amount. The price of our Class A common stock was not greater than or equal to 130% of the conversion price for 20 or more trading days during the 30 consecutive trading days ending on the last trading day of the quarter ended January 31, 2021. As such, the 2023 Notes are not convertible for the fiscal quarter commencing after January 31, 2021.
On or after October 15, 2022, holders may convert all or any portion of their Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing conditions.
Upon conversion of the 2023 Notes, we will pay or deliver, as the case may be, cash, shares of our Class A common stock or a combination of cash and shares of Class A common stock, at our election. We intend to settle the principal of the 2023 Notes in cash.
The conversion rate will be subject to adjustment in some events, but will not be adjusted for any accrued or unpaid interest. A holder who converts their 2023 Notes in connection with certain corporate events that constitute a "make-whole fundamental change" per the indenture governing the 2023 Notes are, under certain circumstances, entitled to an increase in the conversion rate. In addition, if we undergo a fundamental change prior to the maturity date, holders may require us to repurchase for cash all or a portion of their 2023 Notes at a repurchase price equal to 100% of the principal amount of the repurchased 2023 Notes, plus accrued and unpaid interest.
We may not redeem the 2023 Notes prior to the maturity date, and no sinking fund is provided for the 2023 Notes.
In accounting for the issuance of the 2023 Notes, we separated the 2023 Notes into liability and equity components. The carrying amount of the liability component of approximately $423.4 million was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $151.6 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2023 Notes. The difference between the principal amount of the 2023 Notes and the liability component (the "debt discount") is amortized to interest expense using the effective interest method over the term of the 2023 Notes. The equity component of the 2023 Notes is included in additional paid-in capital in the condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.
We incurred transaction costs related to the issuance of the 2023 Notes of approximately $11.5 million, consisting of an initial purchasers' discount of $10.8 million and other issuance costs of approximately $0.7 million. In accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the 2023 Notes. Transaction costs attributable to the liability component were approximately $8.5 million, recorded as debt issuance costs (presented as contra debt in the condensed consolidated balance sheets), and are being amortized to interest expense over the term of the 2023 Notes. The transaction costs attributable to the equity component were approximately $3.0 million and were net with the equity component within stockholders’ equity.
23
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The 2023 Notes consisted of the following:
|
|
As of
|
|
|
|
July 31,
2020
|
|
|
January 31,
2021
|
|
|
|
(in thousands)
|
|
Principal amounts:
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
575,000
|
|
|
$
|
575,000
|
|
Unamortized debt discount (1)
|
|
|
(80,298
|
)
|
|
|
(64,719
|
)
|
Unamortized debt issuance costs (1)
|
|
|
(4,480
|
)
|
|
|
(3,611
|
)
|
Net carrying amount
|
|
$
|
490,222
|
|
|
$
|
506,670
|
|
Carrying amount of equity component (2)
|
|
$
|
148,598
|
|
|
$
|
148,598
|
|
|
(1)
|
Included in the condensed consolidated balance sheets within convertible senior notes, net and amortized over the remaining life of the 2023 Notes using the effective interest rate method. The effective interest rate is 6.62%.
|
|
(2)
|
Included in the condensed consolidated balance sheets within additional paid-in capital, net of $3.0 million in equity issuance costs.
|
As of January 31, 2021, the remaining life of the 2023 Notes was approximately 23 months.
The following table sets forth the total interest expense recognized related to the 2023 Notes:
|
|
Three Months Ended
January 31,
|
|
|
Six Months Ended
January 31,
|
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
|
(in thousands)
|
|
Interest expense related to amortization of debt discount
|
|
$
|
7,352
|
|
|
$
|
7,854
|
|
|
$
|
14,584
|
|
|
$
|
15,579
|
|
Interest expense related to amortization of debt issuance
costs
|
|
|
411
|
|
|
|
438
|
|
|
|
814
|
|
|
|
869
|
|
Total interest expense
|
|
$
|
7,763
|
|
|
$
|
8,292
|
|
|
$
|
15,398
|
|
|
$
|
16,448
|
|
Note Hedges and Warrants
Concurrently with the offering of the 2023 Notes in January 2018, we entered into convertible note hedge transactions with certain bank counterparties, whereby we have the initial option to purchase a total of approximately 11.8 million shares of our Class A common stock at a conversion price of approximately $48.85 per share, subject to adjustment for certain specified events. The total cost of the convertible note hedge transactions was approximately $143.2 million. In addition, we sold warrants to certain bank counterparties, whereby the holders of the warrants have the initial option to purchase a total of approximately 11.8 million shares of our Class A common stock at a price of $73.46 per share, subject to adjustment for certain specified events. We received approximately $88.0 million in cash proceeds from the sale of these warrants.
Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset any actual dilution from the conversion of the 2023 Notes and to effectively increase the overall conversion price from $48.85 to $73.46 per share. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded within stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions of approximately $55.2 million was recorded as a reduction to additional paid-in capital in the condensed consolidated balance sheets as of July 31, 2020 and January 31, 2021. The fair value of the note hedges and warrants are not remeasured each reporting period. The amounts paid for the note hedges were tax deductible expenses, while the proceeds received from the warrants were not taxable.
24
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Impact to Earnings per Share
The 2023 Notes will have no impact on diluted earnings per share ("EPS") until they meet the criteria for conversion, as discussed above, as we intend to settle the principal amount of the 2023 Notes in cash upon conversion. Under the treasury stock method, in periods when we report net income, we are required to include the effect of additional shares that may be issued under the 2023 Notes when the price of our Class A common stock exceeds the conversion price. Under this method, the cumulative dilutive effect of the 2023 Notes would be approximately 3.9 million shares if the average price of our Class A common stock was $73.46. However, upon conversion, there will be no economic dilution from the 2023 Notes, as exercise of the note hedges eliminate any dilution that would have otherwise occurred. The note hedges are required to be excluded from the calculation of diluted earnings per share, as they would be antidilutive under the treasury stock method.
The warrants will have a dilutive effect when the average share price exceeds the warrant strike price of $73.46 per share. As the price of our Class A common stock continues to increase above the warrant strike price, additional dilution would occur at a declining rate so that a $10 increase from the warrant strike price would yield a cumulative dilution of approximately 4.9 million diluted shares for EPS purposes. However, upon conversion, the note hedges would neutralize the dilution from the 2023 Notes so that there would only be dilution from the warrants, which would result in an actual dilution of approximately 1.4 million shares at a common stock price of $83.46.
2026 Notes
In August 2020, we entered into an investment agreement (the "Investment Agreement") with BCPE Nucleon (DE) SVP, LP, an entity affiliated with Bain Capital, LP ("Bain") relating to the issuance and sale to Bain of $750.0 million in aggregate principal amount of the 2026 Notes. The total net proceeds from this offering were approximately $723.7 million, after deducting $26.3 million of debt issuance costs.
The 2026 Notes bear interest at a rate of 2.5% per annum, with such interest to be paid in kind ("PIK") on the 2026 Notes held by Bain through an increase in the principal amount of the 2026 Notes, and paid in cash on any 2026 Notes transferred to entities that are not affiliated with Bain. Interest on the 2026 Notes will accrue from the date of issuance (September 24, 2020) and be added to the principal amount on a semi-annual basis (March 15 and September 15 of each year, beginning on March 15, 2021). The 2026 Notes mature on September 15, 2026, subject to earlier conversion, redemption or repurchase.
Pursuant to the Investment Agreement, and subject to certain exceptions, Bain will be restricted from transferring or entering into an agreement that transfers the economic consequences of ownership of the 2026 Notes or converting the 2026 Notes prior to the earlier of (i) the one-year anniversary of the original issue date of the 2026 Notes or (ii) immediately prior to the consummation of a change of control or entry into a definitive agreement for a transaction that, if consummated, would result in a change of control or fundamental change, as defined in the indenture governing the 2026 Notes. Exceptions to such restrictions on transfer include, among others: (a) transfers to affiliates of Bain, (b) transfers to us or any of our subsidiaries, (c) transfers to a third party where the net proceeds of such sale are solely used to satisfy a margin call or repay a permitted loan, or (d) transfers in connection with certain merger and acquisition events.
The 2026 Notes will be convertible into our shares of Class A common stock based on an initial conversion rate of 36.036 shares of common stock per $1,000 principal amount of the 2026 Notes, which is equal to an initial conversion price of $27.75 per share, subject to customary anti-dilution and other adjustments, including in connection with any make-whole adjustments as a result of certain extraordinary transactions. In addition, at the one-year anniversary of the 2026 Notes, depending on the level of achievement of certain financial milestones, the conversion price is subject to a one-time adjustment, on a sliding scale in the range of $25.25 to $27.75 per share, at which time the conversion price will become fixed.
Upon conversion of the 2026 Notes, we will pay or deliver, as the case may be, cash, shares of our Class A common stock or a combination of cash and shares of our Class A common stock, at our election.
25
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
On or after September 15, 2025, the 2026 Notes will be redeemable by us in the event that the closing sale price of our Class A common stock has been at least 150% 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 on, and including, the trading day immediately preceding the date on which the we provide the redemption notice at a redemption price of 100% of the principal amount of such 2026 Notes, plus any accrued and unpaid interest to, but excluding, the redemption date.
With certain exceptions, upon a change of control or a fundamental change, the holders of the 2026 Notes may require us to repurchase all or part of the principal amount of the 2026 Notes at a repurchase price equal to 100% of the principal amount of the 2026 Notes, plus any accrued and unpaid interest to, but excluding, the repurchase date, or holders can convert with an increase in the conversion rate to reflect a make-whole premium.
In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the 2026 Notes from the respective host debt instrument, which is treated as a debt discount, and initially recorded the conversion option of $230.9 million as a derivative liability in our condensed consolidated balance sheet, with the corresponding amount recorded as a discount to the 2026 Notes to be amortized over the term of the 2026 Notes using the effective interest method.
The 2026 Notes consisted of the following:
|
|
As of January 31, 2021
|
|
|
|
(in thousands)
|
|
Principal amounts:
|
|
|
|
|
Principal
|
|
$
|
750,000
|
|
Unamortized debt discount (conversion feature) (1)
|
|
|
(219,829
|
)
|
Unamortized debt issuance costs (1)
|
|
|
(25,116
|
)
|
Net carrying amount
|
|
$
|
505,055
|
|
|
(1)
|
Included in the condensed consolidated balance sheets within convertible senior notes, net and amortized over the remaining life of the 2026 Notes using the effective interest rate method. The effective interest rate is 7.05%.
|
As of January 31, 2021, the remaining life of the 2026 Notes was approximately 5.6 years.
The following table sets forth the total interest expense recognized related to the 2026 Notes:
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
January 31, 2021
|
|
|
|
(in thousands)
|
|
Interest expense related to amortization of debt discount
|
|
$
|
7,894
|
|
|
$
|
11,081
|
|
Interest expense related to amortization of debt issuance costs
|
|
|
902
|
|
|
|
1,267
|
|
Non-cash interest expense
|
|
|
4,663
|
|
|
|
6,615
|
|
Total interest expense
|
|
$
|
13,459
|
|
|
$
|
18,963
|
|
Non-cash interest expense is related to the 2.5% PIK interest that we accrued from the issuance of the 2026 Notes through January 31, 2021 and was recognized within other expense, net in the condensed consolidated statement of operations and other liabilities–non-current in the condensed consolidated balance sheet. The accrued PIK interest will be converted to the principal balance of the 2026 Notes at each payment date and will be convertible to shares at maturity or when converted.
Impact to Earnings per Share
The 2026 Notes will have no impact on diluted EPS until the average price of our Class A common stock is greater than the conversion price, discussed above, as we intend to settle the principal amount of the 2026 Notes in cash upon conversion. Under the treasury stock method, in periods when we report net income, we are required to include the effect of additional shares that may be issued under the 2026 Notes when the price of our Class A common stock exceeds the conversion price. During the six months ended January 31, 2021, the average price of our Class A common stock did not exceed the conversion price of the 2026 Notes.
26
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 6. LEASES
We have operating leases for offices, research and development facilities and datacenters. Our leases have remaining lease terms of one year to approximately eight years, some of which include options to renew or terminate. We do not include renewal options in the lease terms for calculating our lease liability, as we are not reasonably certain that we will exercise these renewal options at the time of the lease commencement. Our lease agreements do not contain any residual value guarantees or restrictive covenants.
Our finance leases are not material to our condensed consolidated financial statements. The related assumptions and additional disclosures for our finance leases are not material.
Total operating lease cost was $10.2 million and $18.9 million for the three and six months ended January 31, 2020 and $10.5 million and $20.9 million for the three and six months ended January 31, 2021, respectively, excluding short-term lease costs, variable lease costs and sublease income, each of which were not material. Variable lease costs primarily include common area maintenance charges.
During the second quarter of fiscal 2020, we ceased using certain office spaces internationally. As the carrying value of the related right-of-use assets exceeded fair value, we recorded a $3.0 million impairment in our consolidated statements of operations for the fiscal year ended July 31, 2020. Of the $3.0 million impairment, approximately $1.8 million relates to the impairment of our operating lease right-of-use assets and approximately $1.2 million relates to the impairment of leasehold improvements.
During the first quarter of fiscal 2021, we recorded additional impairment charges related to certain of our international office spaces, as well as an impairment charge related to an office space in the United States. We recorded a $2.8 million impairment in our condensed consolidated statement of operations for the six months ended January 31, 2021. Of the $2.8 million impairment, approximately $1.9 million relates to the impairment of our operating lease right-of-use assets and approximately $0.9 million relates to the impairment of leasehold improvements. Additional charges related to asset impairments may be recorded in the future.
Supplemental balance sheet information related to leases is as follows:
|
|
As of January 31, 2021
|
|
|
|
(in thousands)
|
|
Operating leases:
|
|
|
|
|
Operating lease right-of-use assets, gross
|
|
$
|
169,887
|
|
Accumulated amortization
|
|
|
(48,821
|
)
|
Operating lease right-of-use assets, net
|
|
$
|
121,066
|
|
|
|
|
|
|
Operating lease liabilities—current
|
|
$
|
41,309
|
|
Operating lease liabilities—non-current
|
|
|
107,784
|
|
Total operating lease liabilities
|
|
$
|
149,093
|
|
|
|
|
|
|
Weighted average remaining lease term (in years):
|
|
3.5
|
|
Weighted average discount rate:
|
|
|
5.4
|
%
|
27
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Supplemental cash flow and other information related to leases is as follows:
|
|
Three Months Ended
January 31,
|
|
|
Six Months Ended
January 31,
|
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
|
(in thousands)
|
|
Cash paid for amounts included in the measurement of
lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
12,686
|
|
|
$
|
12,398
|
|
|
$
|
21,436
|
|
|
$
|
22,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities arising from obtaining right-of-use assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
23,420
|
|
|
$
|
3,620
|
|
|
$
|
36,389
|
|
|
$
|
13,538
|
|
The undiscounted cash flows for our operating lease liabilities as of January 31, 2021 were as follows:
Fiscal Year Ending July 31:
|
|
Amount
|
|
|
|
(in thousands)
|
|
2021 (remaining six months)
|
|
$
|
24,174
|
|
2022
|
|
|
48,894
|
|
2023
|
|
|
47,688
|
|
2024
|
|
|
33,040
|
|
2025
|
|
|
7,194
|
|
Thereafter
|
|
|
4,698
|
|
Total lease payments
|
|
|
165,689
|
|
Less: imputed interest
|
|
|
(16,596
|
)
|
Total lease obligation
|
|
|
149,093
|
|
Less: current lease obligations
|
|
|
(41,309
|
)
|
Long-term lease obligations
|
|
$
|
107,784
|
|
As of January 31, 2021, we had additional operating lease commitments of approximately $0.8 million on an undiscounted basis for certain office leases that have not yet commenced. These operating leases will commence during fiscal 2022, with lease terms of approximately two years.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
In the normal course of business, we make commitments with our OEMs to ensure them a minimum level of financial consideration for their investment in our joint solutions. These commitments are based on revenue targets or on-hand inventory and non-cancelable purchase orders for non-standard components. We record a charge related to these items when we determine that it is probable a loss will be incurred and we are able to estimate the amount of the loss. Our historical charges have not been material. As of January 31, 2021, we had up to approximately $61.4 million of non-cancelable purchase obligations and other commitments pertaining to our daily business operations, and up to approximately $66.9 million in the form of guarantees to certain of our OEMs.
28
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Legal Proceedings
Securities Class Actions. Beginning on March 29, 2019, several purported securities class actions were filed in the United States District Court for the Northern District of California against us and two of our officers. The initial complaints generally alleged that the defendants made false and misleading statements in violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5. In July 2019, the court consolidated the actions into a single action, and appointed a lead plaintiff, who then filed a consolidated amended complaint (the "Original Complaint"). The action was brought on behalf of those who purchased or otherwise acquired our stock between November 30, 2017 and May 30, 2019, inclusive. The defendants subsequently filed a motion to dismiss the Original Complaint, which the court granted on March 9, 2020, while providing the lead plaintiff leave to amend. On April 17, 2020, the lead plaintiff filed a second amended complaint (the "Current Complaint"), again naming us and two of our officers as defendants. The Current Complaint alleges the same class period, includes many of the same factual allegations as the Original Complaint, and again alleges that the defendants violated Sections 10(b) and 20(a) of the Exchange Act, as well as SEC Rule 10b-5. The Current Complaint seeks monetary damages in an unspecified amount. On September 11, 2020, the court denied our motion to dismiss the Current Complaint and held that the lead plaintiff adequately stated a claim with respect to certain statements regarding our new customer growth and sales productivity. The court held a case management conference on October 27, 2020 and set a pretrial schedule for the case. On January 27, 2021, lead plaintiff, Shimon Hedvat, filed a motion to (i) withdraw as lead plaintiff and (ii) substitute proposed new lead plaintiffs Jose Flores and the City of Miami Fire Fighters and Police Officers Retirement Trust and approve their appointment of a new co-lead counsel. Defendants filed an opposition on February 10, 2021, lead plaintiff filed a reply on February 17, 2021, and defendants filed a response to lead plaintiff’s reply on February 22, 2021. On March 1, 2021, the court granted the lead plaintiff’s motion to withdraw as lead plaintiff but denied without prejudice his motion to substitute proposed new lead plaintiffs. The court also reopened the lead plaintiff selection process, allowing any putative class member interested in serving as the new lead plaintiff to file a lead plaintiff application within 21 days of the order. The litigation is still in early stages, and we plan to continue to vigorously defend against the allegations and we are not able to determine what, if any, liabilities will attach to the Current Complaint.
Shareholder Derivative Actions. Beginning on July 1, 2019, several shareholder derivative complaints were filed in each of the U.S. District Court for the Northern District of California, the Superior Court of California for the County of San Mateo and the Superior Court of California for the County of Santa Clara, naming (i) fourteen of Nutanix’s current and former officers and directors as defendants and (ii) the Company as a nominal defendant. The complaints generally alleged claims for breach of fiduciary duty, waste of corporate assets and unjust enrichment, all based on the same general underlying allegations that are contained in the securities class actions described above. The Superior Court complaints additionally alleged insider trading and violation of California Corporations Code Section 25402, and the Santa Clara County Superior Court complaints further included additional claims for "abuse of control" and "gross mismanagement." In August 2019, the Superior Court of California for the County of Santa Clara consolidated the Santa Clara derivative actions into a single action and, in January 2020, the court stayed the consolidated Santa Clara action in deference to the federal derivative actions described above. On September 17, 2019, the Superior Court of California for the County of San Mateo granted the plaintiff’s request for voluntary dismissal without prejudice. On January 7, 2020, the U.S. District Court for the North District of California consolidated the federal actions and, on March 6, 2020, the plaintiffs filed a stipulation designating a lead plaintiff and deeming the lead plaintiff’s original complaint as the designated complaint in the matter. On April 22, 2020, (i) the individual defendants filed a motion to dismiss the designated complaint on the grounds that it fails to state a claim, and (ii) we filed a motion to dismiss the designated complaint on the grounds that the plaintiffs failed to make a demand on our Board of Directors before filing the designated complaint. In response, the plaintiffs filed an amended complaint on June 17, 2020. On October 5, 2020, the court granted the individual defendants’ motions to dismiss the amended complaint, while providing the plaintiffs leave to amend their complaint by October 26, 2020, which deadline was extended to December 1, 2020. In lieu of filing an amended complaint, the stockholders in the federal derivative actions have made a demand on our Board of Directors to investigate the allegations underlying the securities class action matters, and the parties subsequently filed a stipulation with the court to have the federal derivative lawsuit dismissed. On December 22, 2020, pursuant to the parties’ stipulation, the matter was dismissed in toto and with prejudice with respect to plaintiffs’ standing to pursue derivative claims based on allegations of demand futility. The matters are in the very early stages and we are not able to determine what, if any, liabilities will attach to these matters.
We are not currently a party to any other legal proceedings that we believe to be material to our business or financial condition. From time to time, we may become party to various litigation matters and subject to claims that arise in the ordinary course of business.
29
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 8. STOCKHOLDERS’ EQUITY
We have two classes of authorized common stock, Class A common stock and Class B common stock. As of January 31, 2021, we had one billion shares of Class A common stock authorized, with a par value of $0.000025 per share, and 200 million shares of Class B common stock authorized, with a par value of $0.000025 per share. As of January 31, 2021, we had 193.5 million shares of Class A common stock issued and outstanding and 10.8 million shares of Class B common stock issued and outstanding.
Holders of Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders. Holders of Class B common stock are entitled to 10 votes for each share of Class B common stock held on all matters submitted to a vote of stockholders. Except with respect to voting, the rights of the holders of Class A and Class B common stock are identical. Shares of Class B common stock are voluntarily convertible into shares of Class A common stock at the option of the holder and are generally automatically converted into shares of our Class A common stock upon a sale or transfer. Shares issued in connection with exercises of stock options, vesting of restricted stock units, or shares purchased under the employee stock purchase plan are generally automatically converted into shares of our Class A common stock. Shares issued in connection with an exercise of common stock warrants are converted into shares of our Class B common stock.
Share Repurchase
In August 2020, our Board of Directors authorized the repurchase of up to $125.0 million of our Class A common stock. Repurchases were made through open market purchases or privately negotiated transactions subject to market conditions, applicable legal requirements and other relevant factors. The repurchase program did not obligate us to acquire any particular amount of our common stock, and could have been suspended at any time at our discretion.
During the six months ended January 31, 2021, we repurchased 5.2 million shares of common stock in open market transactions at an average price of $24.15 per share, for an aggregate purchase price of $125.0 million. As of January 31, 2021, there is no remaining authorization and the program has expired, as our Board of Directors does not plan to authorize any additional share repurchases in the foreseeable future.
NOTE 9. EQUITY INCENTIVE PLANS
Stock Plans
We have three equity incentive plans, the 2010 Stock Plan ("2010 Plan"), 2011 Stock Plan ("2011 Plan") and 2016 Equity Incentive Plan ("2016 Plan"). Our stockholders approved the 2016 Plan in March 2016 and it became effective in connection with our initial public offering ("IPO"). As a result, at the time of the IPO, we ceased granting additional stock awards under the 2010 Plan and 2011 Plan and both plans were terminated. Any outstanding stock awards under the 2010 Plan and 2011 Plan will remain outstanding, subject to the terms of the applicable plan and award agreements, until such shares are issued under those stock awards, by exercise of stock options or settlement of restricted stock units ("RSUs"), or until those stock awards become vested or expired by their terms.
Under the 2016 Plan, we may grant incentive stock options, non-statutory stock options, restricted stock, RSUs and stock appreciation rights to employees, directors and consultants. We initially reserved 22.4 million shares of our Class A common stock for issuance under the 2016 Plan. The number of shares of Class A common stock available for issuance under the 2016 Plan will also include an annual increase on the first day of each fiscal year, beginning in fiscal 2018, equal to the lesser of: 18.0 million shares, 5% of the outstanding shares of all classes of common stock as of the last day of our immediately preceding fiscal year, or such other amount as may be determined by the Board. Accordingly, on August 1, 2019 and 2020, the number of shares of Class A common stock available for issuance under the 2016 Plan increased by 9.4 million and 10.1 million shares, respectively, pursuant to these provisions. As of January 31, 2021, we had reserved a total of 47.0 million shares for the issuance of equity awards under the Stock Plans, of which 13.4 million shares were still available for grant.
30
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Restricted Stock Units
Performance RSUs — We have granted RSUs that have both service and performance conditions to our executives and employees ("Performance RSUs"). Vesting of Performance RSUs is subject to continuous service and the satisfaction of certain performance targets. While we recognize cumulative stock-based compensation expense for the portion of the awards for which both the service condition has been satisfied and it is probable that the performance conditions will be met, the actual vesting and settlement of Performance RSUs are subject to the performance conditions actually being met.
Market Stock Units — Due to the departure of our former Chief Executive Officer (“CEO”) in December 2020, the 300,000 RSUs subject to certain market conditions ("MSUs") that were previously granted in October 2018 and December 2019 were forfeited.
In connection with his hiring, in December 2020, the Compensation Committee of our Board of Directors approved the grant of 703,117 MSUs to our new CEO. These MSUs have a weighted average grant date fair value per unit of $35.69 and will vest up to 133% based upon the achievement of certain stock price targets over a performance period of approximately 4.0 years, subject to his continuous service on each vesting date.
In order to align with the MSUs granted to our new CEO, in December 2020, the Compensation Committee of our Board of Directors modified the vesting conditions for the 75,000 MSUs previously granted to another of our executives. These modified MSUs have a weighted average grant date fair value per unit of $27.54 and will vest based upon the achievement of a modified stock price target over the original performance period of approximately 3.9 years, subject to continuous service on each vesting date. The incremental compensation cost resulting from this modification was not material.
We used Monte Carlo simulations to calculate the fair value of these awards on the grant date. A Monte Carlo simulation requires the use of various assumptions, including the stock price volatility and risk-free interest rate as of the valuation date corresponding to the length of time remaining in the performance period and expected dividend yield. We recognize stock-based compensation expense related to these MSUs using the graded vesting attribution method over the respective performance periods. As of January 31, 2021, 778,117 MSUs remained outstanding.
Below is a summary of RSU activity, including MSUs, under the Stock Plans:
|
|
Number of
Shares
|
|
|
Grant Date
Fair Value
per Share
|
|
|
|
(in thousands)
|
|
|
|
|
|
Outstanding at July 31, 2020
|
|
|
22,632
|
|
|
$
|
32.70
|
|
Granted
|
|
|
12,211
|
|
|
$
|
29.37
|
|
Released
|
|
|
(5,251
|
)
|
|
$
|
32.21
|
|
Forfeited
|
|
|
(2,310
|
)
|
|
$
|
31.51
|
|
Outstanding at January 31, 2021
|
|
|
27,282
|
|
|
$
|
31.40
|
|
Stock Options
We did not grant any stock options during the six months ended January 31, 2021. A total of 0.8 million stock options were exercised during the six months ended January 31, 2021, with an average exercise price per share of $5.09. As of January 31, 2021, 6.3 million stock options, with a weighted average exercise price of $4.55 per share, a weighted average remaining contractual life of 2.2 years and an aggregate intrinsic value of $163.3 million, remained outstanding.
Employee Stock Purchase Plan
In December 2015, the Board adopted the 2016 Employee Stock Purchase Plan, which was subsequently amended in January 2016 and September 2016 and approved by our stockholders in March 2016 ("Original 2016 ESPP"). The Original 2016 ESPP became effective in connection with our IPO. On December 13, 2019, during our 2019 Annual Meeting of Stockholders, our stockholders approved certain amendments to the Original 2016 ESPP. Under the amended and restated Original 2016 ESPP ("2016 ESPP"), the maximum number of shares of Class A common stock available for sale is 11.5 million shares, representing an increase of 9.2 million shares.
31
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The 2016 ESPP allows eligible employees to purchase shares of our Class A common stock at a discount through payroll deductions of up to 15% of eligible compensation, subject to caps of $25,000 in any calendar year and 1,000 shares on any purchase date. The 2016 ESPP provides for 12-month offering periods, generally beginning in March and September of each year, and each offering period consists of two six-month purchase periods.
On each purchase date, participating employees will purchase Class A common stock at a price per share equal to 85% of the lesser of the fair market value of our Class A common stock on (i) the first trading day of the applicable offering period or (ii) the last trading day of each purchase period in the applicable offering period. If the stock price of our Class A common stock on any purchase date in an offering period is lower than the stock price on the enrollment date of that offering period, the offering period will immediately reset after the purchase of shares on such purchase date and automatically roll into a new offering period.
During the six months ended January 31, 2021, 1.5 million shares of common stock were purchased under the 2016 ESPP for an aggregate amount of $18.1 million. As of January 31, 2021, 7.7 million shares were available for future issuance under the 2016 ESPP.
We use the Black-Scholes option pricing model to determine the fair value of shares purchased under the 2016 ESPP with the following weighted average assumptions on the date of grant:
|
|
Six Months Ended
January 31,
|
|
|
|
2020
|
|
|
2021
|
|
Expected term (in years)
|
|
|
0.92
|
|
|
|
0.92
|
|
Risk-free interest rate
|
|
|
1.9
|
%
|
|
|
0.1
|
%
|
Volatility
|
|
|
68.7
|
%
|
|
|
73.4
|
%
|
Dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
Stock-Based Compensation
Total stock-based compensation expense recognized in the condensed consolidated statements of operations is as follows:
|
|
Three Months Ended
January 31,
|
|
|
Six Months Ended
January 31,
|
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
|
(in thousands)
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
1,458
|
|
|
$
|
1,659
|
|
|
$
|
2,570
|
|
|
$
|
3,163
|
|
Support, entitlements and other services
|
|
|
5,140
|
|
|
|
5,764
|
|
|
|
9,891
|
|
|
|
11,525
|
|
Sales and marketing
|
|
|
31,185
|
|
|
|
30,031
|
|
|
|
58,960
|
|
|
|
62,258
|
|
Research and development
|
|
|
36,459
|
|
|
|
36,058
|
|
|
|
74,022
|
|
|
|
73,945
|
|
General and administrative
|
|
|
11,373
|
|
|
|
10,942
|
|
|
|
21,598
|
|
|
|
22,761
|
|
Total stock-based compensation expense
|
|
$
|
85,615
|
|
|
$
|
84,454
|
|
|
$
|
167,041
|
|
|
$
|
173,652
|
|
As of January 31, 2021, unrecognized stock-based compensation expense related to outstanding stock awards was approximately $776.1 million and is expected to be recognized over a weighted average period of approximately 2.8 years.
NOTE 10. INCOME TAXES
The income tax provisions of $4.6 million and $8.6 million for the three and six months ended January 31, 2020 and $5.1 million and $9.4 million for the three and six months ended January 31, 2021, respectively, primarily consisted of foreign taxes on our international operations and U.S. state income taxes. We continue to maintain a valuation allowance for our U.S. Federal and state deferred tax assets and a partial valuation allowance related to our foreign net deferred tax assets.
32
Table of Contents
NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 11. NET LOSS PER SHARE
Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by giving effect to potentially dilutive common stock equivalents outstanding during the period, as their effect would be dilutive. Potentially dilutive common shares include participating securities and shares issuable upon the exercise of stock options, the exercise of common stock warrants, the exercise of convertible preferred stock warrants, the vesting of RSUs and each purchase under the 2016 ESPP, under the treasury stock method.
In loss periods, basic net loss per share and diluted net loss per share are the same, as the effect of potential common shares is antidilutive and therefore excluded.
The rights, including the liquidation and dividend rights, of the holders of our Class A and Class B common stock are identical, except with respect to voting. As the liquidation and dividend rights are identical, our undistributed earnings or losses are allocated on a proportionate basis among the holders of both Class A and Class B common stock. As a result, the net income (loss) per share attributed to common stockholders will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis.
The computation of basic and diluted net loss per share attributable to Class A and Class B common stockholders is as follows:
|
|
Three Months Ended
January 31,
|
|
|
Six Months Ended
January 31,
|
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
|
(in thousands, except per share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(217,564
|
)
|
|
$
|
(287,390
|
)
|
|
$
|
(446,864
|
)
|
|
$
|
(552,438
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares—basic and diluted
|
|
|
192,727
|
|
|
|
202,520
|
|
|
|
191,199
|
|
|
|
202,798
|
|
Net loss per share attributable to common stockholders—
basic and diluted
|
|
$
|
(1.13
|
)
|
|
$
|
(1.42
|
)
|
|
$
|
(2.34
|
)
|
|
$
|
(2.72
|
)
|
The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive are as follows:
|
|
Six Months Ended
January 31,
|
|
|
|
2020
|
|
|
2021
|
|
|
|
(in thousands)
|
|
Outstanding stock options and RSUs
|
|
|
33,500
|
|
|
|
33,571
|
|
Employee stock purchase plan
|
|
|
2,793
|
|
|
|
2,719
|
|
Contingently issuable shares pursuant to business combinations
|
|
|
611
|
|
|
|
253
|
|
Common stock warrants
|
|
|
34
|
|
|
|
—
|
|
Total
|
|
|
36,938
|
|
|
|
36,543
|
|
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NUTANIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 12. SEGMENT INFORMATION
Our chief operating decision maker is a group which is comprised of our Chief Executive Officer and Chief Financial Officer. This group reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, we have a single reportable segment.
The following table sets forth revenue by geographic location based on bill-to location:
|
|
Three Months Ended
January 31,
|
|
|
Six Months Ended
January 31,
|
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
|
(in thousands)
|
|
U.S.
|
|
$
|
182,372
|
|
|
$
|
182,261
|
|
|
$
|
367,139
|
|
|
$
|
359,374
|
|
Asia Pacific
|
|
|
70,804
|
|
|
|
63,187
|
|
|
|
131,125
|
|
|
|
125,785
|
|
Europe, the Middle East and Africa
|
|
|
75,681
|
|
|
|
86,135
|
|
|
|
132,394
|
|
|
|
146,041
|
|
Other Americas
|
|
|
17,910
|
|
|
|
14,799
|
|
|
|
30,877
|
|
|
|
27,936
|
|
Total revenue
|
|
$
|
346,767
|
|
|
$
|
346,382
|
|
|
$
|
661,535
|
|
|
$
|
659,136
|
|
As of July 31, 2020 and January 31, 2021, $136.7 million and $118.8 million, respectively, of our long-lived assets, net were located in the United States.
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